Reality check for car loan freebies!

By BankBazaar | September 25, 2012

In an all out attempt to woo customers financiers are coming up with many different attractive offers and discounts of car loans and purchases. These practices have been largely successful in increasing the actual sales in the past few years. The customers at times are unable to fathom the real financial implications of what is being offered through discounts and lower interest rates on car loans by the financiers and dealers. Thus at times people land up in bad deals, wherein opting for a lower rate of interest in turn caused a costlier repayment.

What is on Offer?

 

There are several kinds of freebies which are being offered for car loan customers which have inputs from the manufacturer, dealer as well as the financer. These freebies are in terms of free servicing, free accessories, free insurance, cash discount and lower rate of interest.

Free Servicing: This is an age old trick that dealers offer customers with a promise to provide free servicing beyond that provided by the manufacturer. But these promises should never be the premise for taking a car loan. There are many hidden costs involved in such free servicing which will keep draining your pocket.

Free Accessories: Many dealers as well as financer are offering certain accessories as free with a particular type of car loan. One has to weigh the cost of the accessory vis-à-vis the cost of repayment of the car loan at the stated rate of interest. By providing a music system worth Rs. 5000 the dealer may actually lead the customer into taking a loan with a higher interest that may cost him Rs. 20000 more in the long run.

Free Insurance: There are offers of free and Rs. 1 insurance cover being promised by financiers and dealers. The trick in such offers is to check the actual IDV (Insured’s Declared Value) and the cover of the policy. Ideally the IDV should be as close to the original price in the first year and not less than 15% depreciation in the second year of the car.

Cash Discount: Some of the cash discount being offered by car dealers are really good and work out beneficial to the customer in the long run. This discount can be availed by the customer on the down payment amount which he has to make before availing the loan. Such discounts can substantially reduce the burden on the customer at the time of the purchase. Additionally the cash discount may work out better than lower interest rates in real terms For example: on a Rs. 4 lakh loan for 5 years at 12% interest the EMI will come to Rs. 8810. But if the dealer gives a discount of Rs. 25000 then this amount when adjusted on the EMIs will make the EMI as low as Rs 8,259 which in turn means that the interest rate of the car loan is 8.8% which is much better than the offered 12%.

Lower Interest: This is a gray area where the customer has to work out the exact amount that he repays taking into account all additional expenses as charges and fees along with the EMIs paid in order to verify the actual utility of the lower rate.

While some of the freebies that are offered along with car loans do really provide some degree of relief to the customer many of them have no financial implications and are mere marketing tricks.

All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit www.bankbazaar.com for the latest rates/offers.

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