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Seven steps to negotiate the best car loan deal

Negotiating a car loan is not that simple as the dealers tend to price in manufacturers and financiers' discount into the interest rate. Here is a step by step process to negotiate the best car loan deal

Harsh Roongta

14 Aug 2007

For most Indians, buying a car is a dream that comes second only to the dream of owning a house. This dream has become real for many Indians with the arrival of easy financing for car purchase.

The decision to buy a car is, very often, prodded by the promise of easy financing that car dealers advertise. "Do not compromise, you can now own a Toyota Corolla for as little as Rs 10,000/ month" says an advertisement, egging on all with monthly spare money of Rs 10,000 to own the dream Toyota. The mathematics of this foxes the prospective buyer. Is it real?

You decide to check with the dealer. You find the offer is real, but the initial lump sum payment would be large. OK, you say to yourself. I'll manage that. But what is the interest rate for the loan? The dealer tells you it is 11% and you wonder, how come it is cheaper than a home loan? You prod further and discover that this is really in lieu of the cash discount you could otherwise have got. You are no longer sure whether to believe him or not.

You are not to blame. Car finance can become complex because of the financing deal between the car dealer and the bank.

It will help you negotiate better if you follow the process below:

1) Finalise your decision on the car you want to buy. The interest rates vary from car to car; so, what is available on one car may not be available on another car

2) Fix the amount of vehicle loan you need. Suppose the car costs
Rs 8 lakh on the road and if you are ready to make a down payment of Rs 2 lakh, then freeze your loan requirements at Rs 6 lakh. Interest rates that you get also depend on the loan amount.

3) Ask around for preliminary quotes for the given loan amount for the given car. Freeze on the lowest EMIs that are offered.

4) Now, negotiate on the processing fees. Most times, the processing fees can be waived.

5) Then, start negotiating for cash discounts that can be adjusted against your down payment. The DSAs/dealers will offer to reduce the EMIs, but resist the temptation and insist on a cash discount. Also, the dealer/DSA will offer accessories in lieu of cash discount; again, resist and insist on cash discount.

6) Once you find that the cash discount limit has been reached, you can try for a small freebie on car accessories such as car mats, boot mats etc.

7) Remember to claim your no-claim bonus on the insurance policy for the new car if you have a claim-free record on your existing old car.

Happy driving!