Keep your car loan in the safe zone | Loans

Finance | Loans | * Written by Watanabe | Monday, 26 November 2012 05:38 | Word Count: 561

Your dream car! More expensive in 2011, thanks to interest rates. But if you postpone the decision to buy a new car? No, if you've been saving up for 2-3 years. Definitely not the best option for banks heavily on a car loan. Make sure the cough at least 30% of the cost of the car, even if banks insist on only 15% of the cost of margin money.

"Car loans are bad because the car's value depreciates faster than the principal amount," says Michael, certified financial planner, Transcend UK. You must set your financial goals and plan in advance to meet them properly. Prioritize your most want. Always consider safety features, maintenance costs and fuel economy, but it should not pay more for the luxury if you can afford it. That does not mean you should not take a loan. But keeping the loan amount as low as possible and purchase fund savings.

Ensure that the ME does not exceed 25% of your monthly salary. The loan amount should be decided on the basis of your ability to pay the EMUS and not just those offered by banks, "said Joseph, certified financial planner.

The problem here is that car loans always work the grant, which may vary from dealer to dealer. Therefore, it becomes difficult for a borrower to scout for the cheapest rate in this scenario. Ideally, a borrower should fix the car model, know the price and fix the amount of the loan. Once the borrower knows the exact amount of the loan, you should approach the dealers who also act as ACID auto loan. "Any customer should ask only for cash discount.

Most dealers confuse customers saying they will offer a lower interest rate instead of a cash discount. But car buyers hardly know how to calculate the real rate of return (IRR). Therefore, if a borrower is paying. 1 lake as payment for a. 5 lake car loan, s / he should ask for a cash discount on that. 1 lake.

"Fixed rates are most popular as they avoid any effects of cyclical changes. Moreover, they are more transparent," says Khanna HDFC Bank. Since 2007, banks have begun to offer variable interest rates on lending interest rates of cars increased by nearly 1.2% in a year. Unlike home loans, banks offer car loans at a fixed rate for the entire tenure of the loan. Home loans also offer fixed rates, but with a reset clause.

According to this clause, the bank has the right to change the interest rate once every three to five years as stipulated in the loan contract. "But no car loans come with this clause. Addition, unlike mortgage loans, the difference between a fixed rate and variable rate is in the range of 0.5-1%." In UK, borrowers have always to the upside risk on floating rates.

But they have never experienced the benefits of variable rate, even when interest rates start falling. Therefore, the difference of 0.5% does not pinch much. Clearly, the benefits of a fixed rate outnumber the variable interest rate on auto loans. In fact, borrowers can breathe easy betting on a fixed rate under a rising interest rate.

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Watanabe: a senior content writer for Motor Buyback in London.

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