Loan Details Buying Tata Nano

I am sure there is business sense for both State Bank of India (SBI) and Tata Motors in this alliance. For those who don’t know about it yet, Tata Nano can be bought on loan only from SBI. Tata Motors has got into an exclusive deal with SBI for this. It does not end there. Say you have the needed Rs 1.25 lakh or so for a Nano. You still have to go through SBI. In this case, you would need to get a demand draft of SBI issued in favour of Tata Motors.

On the one hand, it is no different from an exclusive showroom for a car - you cannot buy a Swift from a Honda showroom, for example. On the other hand, Tata Nano is a people’s car (so to speak) and there is some reason for a loan to be availed of from any bank, anywhere in India. And what about the other public sector banks, like say, State Bank of Travancore? The announcement says that Tata Motors will utilise the seven associate banks of SBI. So it is not just the SBI.

Sure, SBI has a vast network of around 11,000 branches, and add to that the 2000 branches of the associate banks, and that gives Tata Motors a vast reach for sure. According to the latest Reports, Tata Motors is putting the final touches to a finance scheme for the Nano car through a tie-up with the State Bank of India, India's largest bank, under which the bank will finance 70 per cent of the price of the car at an interest rate of 14 to 14.75 per cent for a tenure of up to five years.

Private banks such as HDFC, ICICI and Kotak Mahindra have decided against entering into a rate war with PSU banks over the financing of Nano for now, as they fear aggressive interest rates could lead to high defaults. Though they are still in discussions with Tata Motors, they do not want to offer loans at less than normal rates for Nano customers.

Private auto finance companies — which command more than 60% of the car loan market — are planning to cater to the more upmarket Nano buyer in big cities. The low cost car that will attract customers mainly from the lower middle class and hence it is going to be a risky proposition for most lenders that will extend car loan for the Nano. In fact some lenders have decided to extend booking finance for the vehicle but that the interest rate charged on the loan will be higher during the booking period. The main reason behind this is that lenders expect the rush for loans from the less well off people with whom the risk association is more. Hence banks will charge higher interest rates at the booking stage and after the car is delivered and the lender can mortgage against it, interest rate will be lowered for the rest of the tenure.
What You Need to Look For Before Availing Your Car Loan ?
* Financing your new car - Unless you're paying hard cash, you need to undertake a crash course on becoming a quasi "loans expert" if you're planning to buy a car in the near future and don't have an expert to handle your loan repayments. It makes no difference about the type of car you desire; the basic remains the same for all car types - cars, sedans, SUVs, pickups, mini vans, jeeps etc. You "borrow" once and "repay" on a monthly basis. Since you don't have enough cash to fund your vehicle, or maybe you do have cash but still prefer to go in for a car loan (you pay a "down payment" - a fraction of the car's cost), you are going to need financiers. Different financiers provide loans for different purposes. And the loan criteria also changes with the type of loan you need. So do your homework and research the financiers - "what person" or "company" is providing "what", and what are the criteria for availing the credit. It's important to avail loan options that offer affordable car loan rates.

* Get pre-approved - It's possible to buy your car if you end up getting the required credit. So the ownership of your car depends upon the availability of your car loan. Therefore it makes sense to "shop" for a "loan" first and once you get the approval, you "shop" for your car. The process of "approving" or "arranging" for your "loan" before actually deciding upon the vehicle is referred to as "pre-approval". Getting your "pre-approval" is important since you are sure you have a source of finance for your car and your efforts put in while selecting or deciding your vehicle won't go to waste.

* Find the right financing company - All creditors are not alike. You can save a significant amount of money by selecting the right kind of finance providing car loan rates which suits your needs. Creditors follow a common pattern for charging the interest rates; however their monthly repayment schedule can vary. It's the creditor's discretion to decide how he or she wants the debt to be paid off. Finding the most cost effective loan will help you save a lot of money in the end - when you totally pay off your loan.

* Borrowing money against some investments or savings - There's another option available. If you've saved some money and invested the same in bonds or deposits in banks, chances are you might be eligible for "overdraft" facility against your investments. In such cases the car loan option works out to be very much in your favor as a lot of latitude is given in repaying the loan back. And you end up paying the difference of your savings rate minus the "borrow" or "interest" rate.

* The quicker you payback, the more you save in the end - Creditors charge their interest on the duration of the "borrowings" i.e. for how long you need to avail the car loan facility. It means your net payable interest amount is in direct relation to the time you avail the credit facility. So if you make plans to pay off your debt within a short span to time, you end up paying lesser interest and end up saving money.