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Car loan: Bank vs Auto Finance Company



The festive season is here and buying that new car is on your mind. Banks and auto finance Companies are offering you discounts and are cutting down interest rates on car loans. You are tempted to avail a car loan. The problem you face is should you avail the car loan from bank vs auto finance Company.

What is an auto finance Company?

An auto finance Company finances the purchase (gives you a loan), to purchase a car, which is manufactured by their parent organization. The car manufacturer has a finance division (auto finance division), which gives you a loan to purchase their car brand. You cannot use this loan to purchase a car from another Company. If you want to purchase a car from a Company which does not have its own financing (auto finance division), then you have to avail a loan from a bank.

The benefits of availing a loan from an auto Finance Company

If you have decided to buy a particular car brand and that car brand has its own auto finance division, then you can avail a car loan from them. The bank requires you to have a salary of INR 2.5 – 6 Lakhs a year and has strict eligibility norms and documentation, to avail a loan from them. The auto finance Companies have easier eligibility norms and you can easily avail a loan from them. They also have a lower salary eligibility criteria of INR 1.5-2.5 Lakhs. If you want to avail a car loan and are afraid of the strict eligibility and documentation of the banks, then you can consider the auto finance Companies.

Loyalty benefits

The bank charges the same interest rate to most of its customers. If you avail a car loan from an auto finance Company you could get loyalty benefits. If you have already purchased a car from the auto finance Company, you could easily get a discount (cut), on the interest rates, if you avail a loan to purchase a second car. Sometimes auto finance Companies give discounts on certain select car brands of their manufacturer. If you purchase a select car brand from the manufacturer, the auto finance Company would give you a discount on the interest rate. You will have to make a down payment on the car (money you pay at the time of purchase maybe 20% of the cost), and a bullet repayment. A bullet repayment is a single large installment you pay each year, for the time period of the car loan availed. The bank will charge you a higher rate of interest than the auto finance Company.

You need to be careful of

The short tenure of repayment of the auto finance Companies. The banks allow you to repay the car loan over a tenure of 7 years. The auto finance Companies would give you a tenure of 5 years to repay the car loan. You can avail a car loan from an auto finance Company to buy only their car brands. The final choice of whether to avail a car loan from bank vs auto finance Company is yours. You need to check the EMI’s, repayment tenure and your repayment ability before availing a car loan.

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