After deducting the down payment from your car loan, the bank will finance the remaining portion of your car loan. Depending on the rate of interest charged on your car loan, and the tenure of your car loan, the banks will decide an EMI (Equated Monthly Installment) for you to repay for the entire duration of the loan.

Processing fees and other charges

There are certain fees to be paid to the bank while getting the car loans. Banks charge processing fees for car loans, which is generally 1% to 4% of the loan amount. This fees varies from bank to bank. In addition to this fees, banks also charge stamp duties, origination fees and administrative fees. These factors increase the cost of the car loan.

There are certain things to keep in mind when the loan is sanctioned and the repayment process begins. Whenever you miss on a repayment, the bank slaps a late payment fee/penalty, if your check bounces the bank will penalize you with check bounce charges, similarly if you want to swap a check, check swap charges will be levied by the bank. In addition to these charges banks will demand money to give you duplicate documents and statements. In a scenario where the banks have to repossess the vehicle due to a severe repayment defaults, the bank will levy legal and repossession fees on the borrower.

Conclusion

A car loan provides the much needed funds to own that dream car. If the borrower follows the repayment schedule like a religion and gets into the good books of bank, he builds up his credit history - banks will not hesitate to offer him better rates on all future loans. But if he is irregular in repaying the car loan, the interest rates can creep up and this coupled with late payment penalties will make things increasingly difficult.