Buying a car was never so easy and never before has the Indian consumer had so many choices. Not only are there new models in every segment—from mid-sized family cars to sports utility vehicles and luxury sedans—the car finance market has also become very competitive. And while the customer today is very much in the driver’s seat, the wide range of car finance options can be quite bewildering. For most buyers, issues like choosing the best dealer and scheme, picking a trustworthy lender and deciding which among the seemingly endless permutations and combinations of financing schemes suits your purpose, can be unnerving. How do you make sure that the car you are finally driving home is the one you have got a great bargain on? Like elsewhere, information is power and it is best to arm yourself with whatever there is to know on the subject.

Step 1: Best man in
So you have identified the vehicle of your choice? It’s now time to go after the car dealers and negotiate a price. In this phase, your skills as a haggler are on test, and there are huge monetary incentives to drive a hard bargain. Such is the level of competition that virtually every dealer offers discounts or ‘subventions’ as they are called. And hold your breath, these discounts can save you anything between Rs 3,000 to Rs 30,000 depending on the model, color, dealers’ inventory status and timing of your purchase.

Dealers usually have monthly targets to meet and hence month-ends are the best time to negotiate for heftier discounts. Besides, if you are one of those who is not bothered about auspicious months and days, chances are that you will get a better deal. The trick is to buy during the so-called ‘inauspicious’ months. Additionally, you can negotiate lower prices on a vehicle that may have overstayed in a dealer’s showroom. So have you decided on your dealer? The next step is to understand the different schemes on offer.

Step 2: The real deal...
It is a buyer’s market and there are schemes to suit every need. However, for a better deal, examine the terms and conditions of a particular scheme carefully. This will give you an opportunity to weigh the pros and cons of various schemes before judging which one suits you best.

Margin Money/Down Payment: Simple and easily understood, this is the most popular scheme and is offered by all financiers. The customer pays minimum margin money upfront. The financier funds the balance. Interest is charged on the amount funded and instalments are collected on the same day as disbursal of credit. The margin money is determined on the basis of make and model, tenure of the loan, and the creditworthiness of the borrower. The amount financed is a percentage of the ex-showroom price of the car, popularly known as LTV (Loan to Value Ratio). The LTV ranges from 75% to 95% of the ex-showroom price. Normally, the financier expects you to pay for the insurance and road tax over and above the margin money.

Instalment in Advance: These are usually 0% interest schemes and margin money on the car is collected under the guise of advance instalments. However, under this scheme, 100% value of the car is considered for loan. Usually two to five instalments are collected in advance and are adjusted against the last few instalments. What this means is that in a three-year loan, if four instalments are collected in advance, then you repay only 32 instalments.

Structured Option: While monthly instalment is constant in most schemes, a structured scheme offers built-in flexibility to step-up or step-down the instalment amount. In a typical three-year structured step-up scheme, instalments can increase progressively from year one to year three. Conversely, in a step-down scheme, instalments would progressively decrease from year one to year three. There could also be a combination of step-up and step-down instalments. Financiers for salaried employees normally offer this. This scheme is very useful to manage predictable upswings and downswings of disposable income.

Security Deposit: In this scheme, 10% to 25% of the value of the car is taken as a security deposit. This could be with no interest, with simple interest or with compound interest. Theoretically, the financier funds 100% of the value of the car but in reality, his exposure is lower by the amount of deposit collected. The interest charged would be on the full amount and the instalments will be collected on the same. The security deposit along with interest if any, is refunded at the end of the contract. However, remember that if the interest on the security deposit exceeds Rs 2,500 per annum, TDS @11.5 % will be cut. Now that you have decided on your kind of finance scheme, it’s time to zero in on the financier who can give you the best deal.

Step 3: The financier
Most car dealers have tie-ups with different private banks, including foreign banks and non-banking finance companies (NBFCs). The interest rate they offer and the terms of lending vary within a small range depending on the make and model of the car, the loan tenure and the type of lending scheme. However, remember that while opting for a loan from a lender attached to your dealer may save you some legwork, it doesn’t always protect your interests.

However, if you do shop around, you’re sure to be rewarded with better deals. Approach lenders directly and drive a hard bargain in the same way as you did with the dealer. Some lenders may offer attractive interest rates, on condition that you go to one of the dealers that they have an arrangement with. Under this arrangement, the lender gets an incentive from the dealer for directing customers his way. But if that means having to forgo the discounts you may have negotiated with the dealer of your choice, the deal isn’t the one for you. Ask for the same discounts that you had negotiated with your dealer or threaten to walk away. The fierce competition usually forces the lender to agree to the choice of dealer. They can’t afford to lose a customer, can they? This way, you get twin benefits—best discounts you’ve negotiated, as well as the best financing scheme.

Shubhendu Parth in New Delhi