NEWS & ADVICE : CAR LOANS
Car Buyers setback due to hike in margin money
By Vaibhav Aggarwal
Nov 20, 2008
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Buying a car through an auto loan may fill you with anxiety, especially when the interest rates are rising. But now there is another factor that will add on to your cause of worry. Private lenders in the country are raising the margin money associated with a car loan. In the past few weeks private banks have increased this margin by 10%.

An increase in the margin money has made it difficult for the prospective buyer who wants to avail a car loan. For compact cars, this percentage has been increased to 10%-15% as compared to around of 5% earlier. Similarly for the mid-sized cars and utility vehicles, the margin is raised to 20% from 10% and 25% from 15% respectively.

The banks are now lending only up to 85% of on-road price against 100% earlier. The on-road price of a car is the dealer's price including the road and insurance. This move by car financers means that now the consumer has to pay a money margin of Rs 60,000 for a compact car as compared to Rs 20,000 earlier. The dealers are therefore finding huge difficulty in getting a car loan through.

Some market sources state: "This is not all. In most cases, car financiers have brought in tighter disbursal norms, making a purchase a herculean task. I know of a case in Coimbatore, where a buyer was asked to show property in his name to avail of a loan for a small car. And more so, after all paper work, the lender disbursed only 85% of the car value."

As a result of this move dealers are expecting a fall in their sales figure. Arvind Saxena, senior Vice-President of Marketing, Hyundai said: "Car financiers are hiking interest rates and increasing margin payments which are affecting the already damp sentiment. We hope to see drop in domestic sales, because of this situation."

However some experts feel that increases in interest rates do not really affect the sales but a hike in the upfront amount may affect the buyer's decision. "For a first time buyer, there is a lot of emotional accomplishment of owning a car, therefore he will try and stretch himself. But, where he is getting stumped now is on margin payments," said an official of a private bank.

 


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