NEW CAR LOAN - public vs private banks

Usually a new car buyer is attracted towards such loan providers who are easy to understand and take less time to process the amount irrespective of charges and future botherations

 

New Car market has grown very fast in last few years. With variety of car options and increased number of car buyer, varieties of Auto/Car loan products have been flooded by the public and private banks. Usually a new car buyer is attracted towards such loan providers who are easy to understand and take less time to process the amount irrespective of charges and future botherations. Let’s analyze the car loan offer by some of the prominent banks from the public and private domain and find out the institution that is providing a better deal for the customers. Following are the charges and offers by various banks in prevailing market situation:

The below-mentioned data help in drawing the criteria to select the most suitable bank. The rate of interest is an important point that differentiates banks while opting for a new car loan. Here we can see that the interest rate charged by the public bank is substantially low while compared to private banks. SBI’s interest rate is around 10.75% for its new car loan whereas the lowest rate charged by private banks is 11%. Most of the public banks have relaxed the customers for the prepayment penalty whereas private banks are charging a good amount if the loan is wrapped up earlier than schedule. The processing charges by the public banks are also lower than private banks.

To conclude we can say that the recent ups and downs in an interest rate have created a wide gap between the Public and Private bank. Monetary benefit seems to be more while selecting a public bank for a new car loan, but one should also keep in mind the average level of service quality provided by these banks. Private Banks always get an edge over public banks while it’s a matter of service quality. If the customer is ready to pay more and doesn’t want to negotiate with the services, then private banks are ahead of public banks. On the other hand, the monetary benefit is substantial with a public bank. If the customer is desirous to take a loan for long duration and there is no hurry, then go for a public bank whereas if there is immediate requirement and that too for a short period, then private banks can fulfill the needs.

Table Showing New Car Loan Charges by the Banks
BANK	INTEREST RATE	PREPAYMENT CLAUSE	PROCESSING CHARGE	OTHER CHARGE
HDFC BANK	11 to 17%	6% of Principal Outstanding(POS)if < 1 year from 1st EMI,	Up to 2.5 Lacs : Rs.2000/-	Late payment penalty :2% per month
		5% of POS for pre-closures within 13-24 months from 1st EMI,
		3% of POS for pre-closures post 24 months from 1st EMI	2.51 to 4 lacs : Rs.3000/-
		No foreclosure allowed within 6 months from date of availing the car loan	> 4 Lacs : Rs 3,500/-
AXIS BANK	12.5 % to 15%	a>Foreclosure within 6 months- 10% of the outstanding loan amount	Rs 3500 to Rs 5500	Late payment penalty :2% per month
		b>Foreclosure after 6 months- 5% of the outstanding loan
SBI	10.75%	Pre Payment Penalty is waived	.51% of loan amount with a condition of minimum Rs 1020 and maximum Rs 10200/-	No Penalty for loans up to Rs.25,000/-.
				Above Rs.25000/- : If irregular, EMI/Installment for one month, then penalty@2% p.a.
				(over and above the applicable interest rate)
				on the overdue amount for the period of default.
ICICI BANK	Up to 23 months-15.75% to 17.00%,	5% of principal outstanding or	For Loan amount: <2.5 Lac -Rs 2500	2% per month on the outstanding installment
	For 24 months to 35 months-13.75% to 16.00 %,	Interest outstanding for unexpired period of the loan, whichever is low.	2.5 to 9.9 Lac- Rs 3500 to 4200
	For 36 to 60 months-11.5% to 14.75%	Note :Part prepayment not allowed.	> 10 Lac- Rs 5000
	Documentation charges Rs 350/- extra for all loan amounts
Oriental Bank Of Commerce	Loan tenure within 3 year:11.4%, after 3 year: 11.65%	Prepayment Penalty / documentation charges/ upfront fee- NIL	0.50% of loan amount with a minimum of Rs.500. +Service tax, if any.	NA

Data Source: Data taken from Respective Bank’s Website as on 23^rd August 2012