By the time you are through with the selection of a car model and dealing with the car price negotiation, you may feel it best to get everything else done with. But the financing for the car should also take the same careful consideration that you applied at the dealership. There is no logical reason to justify paying more for a car loan than what you need to. There are limits to how much we can negotiate but equipped with the right information, you can still save some amount from interest rate to the total cost.
Before you negotiate the terms of your auto loan, it is imperative to know what are and what are not negotiable. It is also good to understand what all factors influence the amount of your monthly payment and the total cost of your loan.
Negotiable loan features
- Length of loan
- Any additional fees associated with the loan
- Annual Percentage Rate (APR) and interest rate
- Prepayment penalty
Factors affecting your Total Cost
- Trade-in amount
- Down payment
- Dealer preparation fees, origination fees, document fees, delivery charges, etc.
Optional extras increasing your Total Cost
- Extended warranties, GAP insurance, and credit insurance for your car and its loan.
- Add-on features bought with the car such as alarm systems, window tinting, and tire and wheel protection, etc.
What cannot be negotiated?
Taxes or title and registration fees are non-negotiable as they are set by the local or state government.
Things to keep in mind while negotiating loan terms
- You can reduce the monthly payment by taking out a longer loan but you will end up paying more in interest that way. By negotiating for better terms on your loan, you can reduce the total you pay over time.
- Getting a lower interest rate and APR means you will pay less to borrow and the total cost of your loan will be lower.
- A higher down payment will reduce the total cost and thus the interest too.
- Keep track of the factors that affect the total cost like the interest rate, length of the loan and other terms.
- Get the car price, trade-in value, interest rate, term of the loan, and estimated monthly payments early in the process. It will help you compare and negotiate better.
- The rate offered by the lender for your loan may not be the best that you qualify for. Be aware of your credit score, eligibility for lower rates and such things so you can know what you can ask for.
- Also if the lender agrees to a certain loan feature like a lower interest rate, for instance, make sure the other factors, like the length of the loan or the total amount financed, are still what you asked for. A lower monthly payment doesn’t mean a lower interest rate. As we discussed earlier, you may end up paying more for a longer time.
- Shop around for the best rate as in most cases the loan offers with a dealer is not the best available. Approach various banks and find out which loan offer suits you best. Research on the car loan before you actually purchase the car so you don’t find yourself paying a lot more than you have to.
- Check your credit reports and look for any discrepancies that may affect your credit profile. This will make the banks quote higher interest rates. If you find any problem, contact the rating agency and sort it out.
- Always go for the shortest loan tenure you can afford. A car loan for seven years is not logical as it will increase the total cost of the car. A car loan is also not a productive debt. So it should be repaid at the earliest.
- Avoid the extras at dealers and buy them from a good accessory shop outside. It will reduce your total cost and save you money.
- Read the fine print of your loan document carefully before signing it. Interest rate, prepayment charges and other terms and conditions should be carefully comprehended.
- Often not taken into account, is the negotiation of the car price itself. It is the best way to bring down the cost of a loan.
Car Loan Interest Rates 2022
|Bank||Interest Rate (p.a.)||Loan Amount||Processing Fee|
|Union Bank of India||7.40% onwards||Up to Rs.125 lakh||0.25% to 0.50% of the loan amount|
|IDBI Bank||7.35% onwards (floating)||Up to Rs.25 lakh||–|
|Axis Bank||7.45% onwards||Rs.1 lakh onwards||Rs.3,500 to Rs.5,500|
|State Bank of India||7.20% onwards||Up to 48 times of monthly income||Nil (Until 31 January 2022)|
|Canara Bank Car Loan||7.30% onwards||Up to 90% of the car’s value||0.25% of loan amount Min: Rs.1,000 Max: Rs.5,000|
|Bank of Baroda||7.00% onwards||Rs.1,500 (plus GST)||0.5% of loan amount Max: Rs.10,000|