What to look for in a car loan agreement!

The car loan is a very common debt today with almost all middle class Indians opting for this method to own their dream vehicle. However, there are some clauses in a car loan agreement that most people are still unaware of which may compromise the interest of borrower at a subsequent stage. Described in this article are some of such clauses in a typical car loan agreement which every prospective buyer must understand completely in order to safeguard his interest in the agreement.

• Effective Date: Usually the effective date is considered as the date on which the first disbursement of the loan is made. The implication of this lies in the fact that all interest computation commences from this date. Additionally the financiers stipulate that in case the money is not utilized within 60 days of the effective date then the loan will be cancelled. Also the borrower must get the car registered within 15 days of the delivery of the vehicle from the showroom.
• Amortization Schedule: This is the schedule of repayment that the borrower has to adhere to containing both the principal amount as well as the interest element. The financiers usually reserve the right to alter this schedule at their sole discretion. This can be contested by the borrower at the time of signing the loan agreement.
• Default: Though most people are aware of the implication and reasons of a default in repayment of the car loan, very few people notice that in most of the car loan agreements the financier states that it shall provide no notice, reminder or intimation to the borrower regarding his obligation to ensure the payment of the loan dues in time. Though this clause cannot be eliminated the borrower will benefit by keeping this fact in mind. The agreement also stipulates the penal charges that will be applicable in case of a default without specifying the amount thereof.
• Prepayment: Though most of the financing companies have a declared prepayment policy the loan agreement usually states that the acceleration in repayment and the amount of the repayment charges will be at the sole discretion of the financier. A written policy on this issue may be obtained from the financier prior to signing the agreement.
• Cross Default: Most car loan agreements contain the cross default clause vide which the car loan shall be considered to have been defaulted upon in case the borrower defaults on the repayment of any other unrelated loan from that or any other financier. Though this is a widely debated topic in the legal circles there is no concrete provision to remove this clause as yet in the country.
• Set Off: The financiers reserve the right to set off any money, insurance claims or securities that are deposited with them in order to recover any outstanding amount of the loan that the borrower is unable to pay without any prior notification to the borrower.
• Inspection & Assignment: The financier shall have the right to inspect the car and its related documents at any point of time during the loan repayment tenure without any prior notice to the borrower.