If you go to buy a car and the dealer asks you if you need a loan, he will ask you to visit the loan desk where you will be offered various bank loans. In such a situation, it happens that most of the buyers prefer to take a car loan from the partner bank of the showroom, because they believe that when all the work is being done under one roof, then why go here and there.
But before you sign up for a loan with a lender who has partnered with a dealer, check if you can get a loan elsewhere at a cheaper interest rate.
The advantage of this is that even a difference of 1% in the interest rate can help you in saving a lot. For example, if you want a loan of Rs 7 lakh, then the dealer gives it at the rate of 8% for five years. Accordingly, your monthly installment i.e. EMI will be Rs 14,194 and total loan repayment will go to Rs 8,51,609.
Similarly, if your loan is 0.5% cheaper, your EMI would be ₹14,027 and the total loan repayment would be ₹8,41,594. If the loan is 1% cheaper, then the EMI and total loan repayment will be ₹13,861 and ₹8,31,650 respectively. Apart from the interest rates, the processing fee added to the total repayment can also make a more significant difference.
See here how much interest five banks are charging on car loans-
|Bank||Rate of interest (%)||Processing fee (% of loan amount)||Period|
|State Bank Of India (SBI)||7.50-11.20||up to 0.40%||7|
|Punjab National Bank (PNB)||7.55-7.80||up to 1,500||7|
|ICICI Bank||7.90-9.85||Rs 3,500-8,500||7|
|Axis Bank||8.65-10.90||Rs 3,500-5,500||7|
|HDFC Bank||7.95-8.30||1% (Rs 5,000-10,000)||7|
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