There are various types of car loans on offer in the markets as financiers compete against each other in attracting more number of customers. The customer has the option of selecting a customized car loan that suits his specific requirements of amount, interest rate, tenure and EMI. The financiers are coming up with many innovative ideas to lure customers in this regard making each new offer more tempting and irresistible. The teaser rate car loan that has been introduced in the Indian markets recently is one such endeavor by the financiers.
What is Teaser rate Car Loan?
The concept of teaser loans has been around in the field of home loans for some time now but has been of late extended to car loans too. This is simply a kind of loan where the rate of interest varies as the repayment progresses typically being around 8% in the first year and 10% in the second and third years and then a prefixed value for the rest of the tenure. The important advantage in this loan variant is that the EMI burden in the initial years is less on the borrower letting adjust to financial requirements after having paid the down payment from his savings. In a teaser car loan the rate of interest in the initial years is lesser than conventional car loan interest rates but increases subsequently to make up the losses incurred by the financier.
Special Features of Teaser rate Car Loans
Some of the features that distinguish a teaser rate loan from the conventional car loans are:
- The minimum down payment by the borrower is 15% of the car’s on road value before getting the loan.
- The amount available for a used car is substantially less as compared to a new car teaser rate loan.
- The maximum limit of loan available is restricted to about two and half times the annual income of the applicant which may be enhanced in case the earning spouse also becomes a co borrower in the car loan.
- There will be an additional penalty of about 2% of the amount repaid at lower interest rate whenever the borrower decides to extend the tenure of the loan after the initial years.
- The overall interest charged for the entire period of the loan shall be commensurate with the Base Rate declared by the Reserve Bank of India.
- The processing fee in case of a teaser rate car loan is lower than conventional loans.
Despite the fact that the initial interest burden on the borrower is less in case of a teaser rate car loan there are certain other criteria that must be looked into before taking this option. The overall cost of the car after repayment of the loan may work out to be costlier than a conventional car loan. There will be steep increase in the Car Loan EMI after the initial two years as the rate of interest in the final years will be much higher in order to make up the losses of the initial years by the bank. Thus while a teaser rate car loan may appear attractive prima facie there are these cost related aspects that the customer needs to understand and calculate prior to availing the facility.