With the availability of car loans in India having become extremely easy more and more people are being encouraged to acquire their dream vehicles. In order to suit the requirement of different kinds of customers the financiers are offering various types of car loans with different features. Some of the most popular schemes of car loans are discussed here.
Margin Money Scheme
This is the by far the most popular mode of car loan in which the customer is required to pay only a small margin (usually 10% of the cost) along with a cheque towards the first EMI on the loan. The balance of the EMIs is paid through post dated cheques that the customer deposits with the financiers. Typically if a car costs Rs. 500000/- then the customer has to pay only Rs. 50000 to avail a loan of Rs. 450000/- which has a Loan to value (LTV) of 90%. This scheme has the lowest car loan EMI as compared to the other options.
Security Deposit Scheme
In this scheme the customer has to make a deposit of a stipulated amount of money with the financier as a security. This deposit amount is refunded to the customer at the end of the loan tenure or in case of any intervening foreclosure of the loan. This deposit also earns a fixed interest which in most cases is lower than the interest charged by the financier on the loan amount. Typically this amount ranges from 20% to 30% of the along amount. However the EMIs paid through this scheme is higher than most of the other schemes. Typically such schemes are opted for by self employed people who do not gave guarantee of salary.
Advance EMI Scheme
In this scheme the customer is provided with 100% of the cost of the car as loan. However the customer is required to pay up 5 to 10 advance EMIs at the time of the disbursement and give the remaining EMIs through post dated cheques catering for the entire tenure of the loan. Though the financier provides full value of the car as loan, the customer is made to pay money as advance EMIs upfront in this scheme. Additionally the interest charged is higher as it is applicable for the full cost of the car.
Hire Purchase Scheme
In this scheme an agreement is made between the financier and the customer by which the customer gets the car on hire with an option to purchase it at a later stage. This scheme is offered by the Non Banking Finance Companies who are not permitted to provide direct loans otherwise. A small token amount called the option money is charged to the customer at the time of taking the car on hire.
Lease Financing Purchase
In this variant the customer and the financier get into an agreement wherein the ownership remains with the financier while the rights to use are retained by the customer. This scheme is popular between NBFCs and corporate bodies who find the arrangement mutually beneficial.
One needs to evaluate all options and then compare with the individual situation before deciding on the type of car loan to avail so as to get the best possible deal that will result in saving money in the long run after the repayment tenure.