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Car companies, dealers and banks jointly bring down loan costs

To combat high interest rates and falling sales, auto manufacturers and dealers have come up with lower interest rate schemes on select car models.

Apnaloan.com Research Bureau

10 Aug 2007

To combat high interest rates and falling sales, auto manufacturers and dealers have come up with lower interest rate schemes on select car models.

In an effort to woo customers, General Motors India is offering car loans at the rate of 7.5% on all models of Chevrolet Optra and Chevrolet Aveo, Hyundai Motors India Ltd (HMIL) is offering loans for Santro at 8.99% now in Pune, after its national scheme ended last month and Ford India is offering loans at 9.9% on Ford Ikon and Ford Fiesta.The existing car loan interest rate is around 14%. Others like Honda Siel Cars India Ltd are in talks with nationalised banks to offer loans at a comparatively lower rate.

It's a win-win situation for all. While customers can save anywhere in the range of Rs 1,000 to Rs 1,200 per month on their EMI on a loan of Rs 3 lakh for a period of three years, auto manufacturers expect to see a spurt in sales and financiers can expect more new customers walking in.

This despite the fact that the trio manufacturers, dealers and auto financiers will have to put in a substantial amount to compensate the lower interest rates. For GM cars, the total amount is in the range of Rs 15,000 to Rs 40,000, for Hyundai Santro over Rs 30,000 while for Ford cars, it works out to be Rs 30,000 to Rs 40,000.

While banks are doing this by lowering interest rates by 100 basis points, dealers will do away with commissions and manufacturers may let go of free insurance schemes during the offer period. "Schemes like this are always worked out to generate volumes in a sluggish market. As such, the difference is compensated once the sales start picking up," P Balendran, V-P, General Motors India was quoted in Times of India.

According to a banker, the move will enable manufacturers and dealers to liquidate stocks along with enhancing number of buyers at outlets.

And this is just the beginning. With no relief in sight, the car manufacturers are set to either review schemes or come out with more offers to revive sales. "Industry will continue to witness a 12-15% dip in sales over the next two months with sales expected to pick up only in September," says Balendran, adding that the company might review its current offer once it ends in June.

"Since a very high percentage of cars are financed, the rise in interest rates does lead to a slowdown at least temporarily. But we are optimistic of greater volumes in days to come," said Arvind Saxena, V-P, HMIL to Times of India, adding that more such packages are likely at the regional level. "The spate of interest rate hike has squeezed the customers who are the feeling the heat at all ends," added Arvind Mathew, MD, Ford India.

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