Should You Take a Personal Loan to Buy a Car?

Buying a car is a dream most of us harbour, with banks more than happy to assist us in fulfilling this dream. With car manufacturers offering models for every budget, owning a car today is easier than it ever was. It is perhaps this ease of owning a vehicle which has seen the number of vehicles on Indian roads increase to over 200 crore. Thousands of new cars and bikes are added to our streets on a daily basis, with most of these taken on loan.

Image Credit: inadaydevelopment.com

If you are one of the many people looking to purchase a car through a loan, there might be cases wherein you asked yourself – Should I take a car loan or personal loan to buy the car?

Well, to be truly able to answer this question we need to understand the nuances of both loans which can have an overall impact on one’s finances.

Listed below are the five main distinguishing points between a personal loan and a car loan.

1. Ease of sanction – Imagine running from one bank to another to get a loan. This sounds exhausting, doesn’t it? In terms of ease of getting a loan, a car loan is quicker and easier to get when compared to a personal loan. Most banks require a lot of documentation to process a personal loan, with it often taking a long time for it to be sanctioned. On the other hand, most car showrooms have partnerships with banks/finance companies through which one can get the loan sanctioned in no time. This can be easily observed when one walks into a car showroom. This feature goes in favour of the car loan, making it a simpler option.

2. Interest rate – A loan isn’t a gift which is given by banks, it a sum which needs to be repaid, with interest. This interest component varies based on the product on offer. Typically, most banks offer personal loans at a higher rate of interest when compared to car or vehicle loans. While a motor vehicle loan can be availed at rates ranging between 9% and 14% per annum, most personal loans attract an interest in the range of 12% to 20%.

In cases where one is looking to buy a used car, the interest for a used car loan is higher than the interest for a regular loan. Used car loans can have an interest ranging between 14% and 20%, based on the bank.

Note: The interest rate can change from bank to bank and the values mentioned above are an estimate.

3. Tenure – The loan amount taken needs to be repaid over a certain period of time. Most banks offer a repayment period upto 5 years for personal loans, with this being around 8 years for a car loan. The repayment period for a used car loan is typically lower, with banks capping it based on the age of the vehicle.

4. Quantum of loan – With cars priced across different brackets, it is not hard to find a car within a set budget. In case of car loans, most banks are willing to finance anywhere between 50% and 80% of the car cost, with this going upto 100% in certain cases. In case 100% financing isn’t available, a car loan will not be sufficient to purchase the car. This implies that one needs to spend some amount from his/her own pocket. For example, for a car costing Rs.10 lakh, a bank offers 80% financing, or Rs.8 lakh. The remaining Rs.2 lakh needs to be arranged by the individual, which could be a hassle in certain cases.

On the other hand, one can directly approach a bank for a loan of Rs.10 lakh and use this to buy the car. There is no need to pay any amount from one’s own pocket.

5. Collateral – A personal loan is an unsecured loan, meaning that it can be availed without providing any security/collateral. On the other hand, a car loan is a secured loan, which means that the car is the security for the loan. In case one fails to repay this loan, the bank can take possession of the car and sell it to recover their money.

While these five points highlight the basic features of a car loan and a personal loan, the ultimate decision of which loan should be taken boils down to the individual. If one has the down-payment amount and wishes to pay a lower rate of interest then he/she should choose a car loan directly. One can also choose a car loan if he/she has a poor credit score, for getting a car loan sanctioned is far easier than getting a personal loan sanctioned.

On the other hand, an individual who does not have the required sum for down-payment and is OK with paying a tad higher interest can go in for a personal loan. In that case, first, it’s important to check personal loan eligibility criteria and then apply for the loan. Also, if the buyer is purchasing a used vehicle, it makes more sense to go in for a personal loan compared to a used car loan.

This article originally published on news18.com

Not able to pay back loan, What can be done?

If we are not able to pay back loan, What can be done? Will it result in dooms day striking our peaceful life? Will the defaulter go to jail straight away? Else we will have hooliganism displayed at our front doors by Banks? Perhaps defaulting loan payment is one of the biggest fear for a common man. These days middle class is earning handsomely.

With increase in purchasing power of middle class they are opting for bank loans more frequently. Sometimes people resort to too much loan without analyzing their payback power.

In past few years the numbers of people defaulting loan payment has risen gradually. This brings us back to our question that what happens if one is not able to pay back loan.

It is a fact that must first be accepted by the defaulter that loan payment default is not a acceptable practice. Loan defaulter are not liked by banks. So for sure defaulters shall not accept a very polite knock on the door by banks.

But there are rights of defaulter that one shall know. Banks cannot simple send recovery agent at their doors to shake them up and show disrespect. In this article we will see what are the rights of loan defaulters.

RBI acting as Big Boss:

Some years back there were lot of news printed about recovery agents. Today we visualize recovery agents more as a rowdy person than a bank associate. In one of the publications of Reserve Bank of India (RBI) it was mentioned that ‘engagement of recovery agents is causing serious reputation risk for the banking sector as a whole’.

Taking a corrective action, RBI revised the guidelines for engaging recovery agent by banks. There is a clear cut guidelines from RBI that banks/recovery agents cannot use ‘uncivilized, unlawful and questionable behaviour’ in the process of loan recovery.

Banks must hire recovery agents with care

RBI has asked banks to conduct due diligence on the agency before nominating a recovery agent. Due diligence shall be conducted by banks. Due diligence shall not only look at the company as a whole but shall also look at who are involved in the recovery process. The person hired as recovery agents shall pass through police verification. The family background of person in consideration shall also be checked by the agency before hiring. So it means that if a rowdy (in name of recovery agent) brushes his shoulders with the defaulter, he/she can lodge a complaint in police station. In this case the recovery agency must give clarification why a rowdy was hired in first place. This may also result in loss of contract by recovery agency from bank.

Recovery agency cannot simple come knocking at door of defaulter

Before bank sends a recovery agent they must issue a intimation. In the intimation letter they must first authorize a recovery agency to act on their behalf. Communication of authorization shall go to the loan defaulter directly from the bank. So it means that any xyz cannot knocks on the door of the defaulter acting as recovery agent. If somebody does the opposite, the load defaulter can refuse to entertain the agents. It may also happen that the recovery agent self carries the authorization letter. But this can be done only when several attempts to deliver the letter has failed in the past. Recovery agents shall approach the loan defaulter only after showing the authorization letter and identify card. In case the agents misbehave, the details of identity card can be used to lodge a police complaint. For helping the cross-verification of the credentials of the recovery agent, concerned bank shall publish the details of recovery agency on their website.

Banks must hear the defaulters side of story

While issuing the details of recovery agent by the bank, they shall also issue one more communication. This communication shall furnish details of ‘how and to whom’ the loan defaulter can contact in bank explaining his grievances. This step looks simple, but it will work as a big help when a recovery agent knocks on defaulters door steps. Then the loan defaulter can show a copy of discussion he/she already had with the bank. If the defaulter has already explained his grievances directly to the bank then recovery agent has no further role to play.

Responsibility of Bank towards Recovery Agents

Frankly speaking, it is banks job to undertake loan recovery process in case of default. But RBI allowed banks to offload the recovery process to a third party. But there are risks when a banking activity is offloaded to a third party. In order to manage the risks, RBI asked banks to provide training to new recovery agents. All recovery agent shall first get a certification and only then they can act as recovery agents. The training session shall explain the ‘code of conduct’ & protocol that recovery agents shall practice while dealing with loan defaulter.

After what steps Banks/Agents can claim possession of asset/s?

If one has defaulted in payment of EMI of his/her auto loan, the recovery agent cannot simply take possession of the vehicle. Bank must issue a letter highlighting the notice period before taking the possession. The letter must also clearly state that what loan defaulter must do in order to get waiver of the notice period. Recovery agent cannot claim possession of anything. They can claim possession of only those items which has been identified as ‘security’ in the loan application form. Bank shall also give in written a ‘final chance’ to the loan defaulter to clear his dues. Repercussion of non clearance of dues must be highlighted to the loan defaulter in written. Banks can only take possession of security and auction it to recover the bad debt.

Banks can show sympathy to defaulters?

It is possible for defaulter to get sympathetic consideration from Bank? RBI has made it compulsory for all banks to have a credit counselor. The loan defaulter can approach the credit counselor and explain his/her grievance to them. In case the counselor is convinced, a recommendation can be sent by him to the bank. He can propose the bank to consider sympathy for the defaulter.

Top Home Loan Schemes: This Festive Season

Courtesy: thehindu.com

Buying a house is the cherished dream for every individual and most rely on their trusted banker to help out with procedures and paperwork. But are you aware of the options available with other banks and non-banking financial organisations?

Most home buyers that opt for home loans get carried away by convincing sales talk and forget to ask relevant questions about charges, late payment penalties, flexible interest rates etc., and then end up paying more than double of the amount borrowed.

So, how do you choose the best home loan plan that suits your financial commitments even if there is a large unforeseen expense in the future?

It is advisable to carry out a thorough check of all lenders in key areas like:

Interest rate
Processing fees
Loan approval time period
Penalties and charges for late payments
Flexible loan regulations and nil foreclosure charges

Remember that if interest rates are low, the fee structure is likely to be high though long duration loans come with low interest rates.

Due to the festival season, both banks and financial institutions are offering attractive freebies to customers. Here are some of the top home loan schemes that have reasonable interest rates, limited charges, and several other benefits.

State Bank of India Home Loan

With a market share of nearly 42%, State Bank of India is the current top favourite of home loan applicants.

Rate of interest: Between 8.35 to 8.70%　

Festive offer: Zero processing fees valid till Dec 2017 for all new loans. This could help to save around Rs.10000 to Rs.12000 depending on the loan amount applied for and the duration.

HDFC Home Loan

Aggressive marketing and flexible home loan plans tailored to suit borrowers has helped HDFC bank capture 24% of the market to become the second largest home loan disbursing organization. 　

Rate of interest: Between 8.35% to 8.55% and their processing fee is 0.5% of loan amount or Rs. 10,000 + service tax.

LIC Housing

LIC Housing has a wide network of branches and promises hassle-free documentation to make it easier for customers to get faster loan approvals. 　

Rate of interest: Between 8.35% to 8.60%

ICICI Bank – Being a private bank, its home loan processing is faster than public banks. This bank is part of the Indian’s government’s Pradhan Mantri Awas Yojna to enable low cost housing for the salaried class. So, depending on a customer’s payment track record, it also offers overdraft facility to them for personal emergencies.

Rateofinterest: Between 8.35 to 8.80%.

Axis Bank – Though a relatively new entrant into the market, Axis Bank has managed to create a strong reputation for itself through aggressive marketing and loan disbursal policy.

Rateof interest: Between 8.35 to 8.70%.　

New: The bank’s new home loan scheme offers a waiver of 12 equated monthly instalments for customers that pay regularly during the fourth, eighth and twelfth year of loan disbursal. This loan waiver will help in cutting down the tenure of home loan. 　　　　

This article is contributed by RoofandFloor, part of KSL Digital Ventures Pvt. Ltd., from The Hindu Group

Source: thehindu.com