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RBI hike to make car loans expensive

Hike in lending rates by RBI will make car loans costly

Apnaloan.com Research Bureau

10 Aug 2007

Chennai: With RBI hiking rates, your dream car may have become more expensive. Car loan lenders have jacked up interest rates on loans by anything between 75 to 100 basis points. The increase would mean a Rs 50 increase a month for a five year loan which has a daily rest basis.

Direct selling agents (DSAs) of ICICI Bank told TOI that they have received a communique from the bank about the hike effective from Monday. "We used to lend at rack rates of 15% per annum, we are now been told that the new rates will be 16% effective from Monday," officials said.

Rack rates are those which are inclusive of DSA commissions. For instance, the end consumer price of a Kotak Mahindra loan was 13.25% when the rack rate was 15.75%.

Sumit Bali, CEO of Kotak Mahindra Prime, said, "Our new rates will be decided on Wednesday. The broad indication is that the rates would go up by anything between 50 to 75 basis points. Our current rack rate is around 15.75%."

"We believe that with increased interest rates on loans, demand for fresh purchases are bound to soften. Basically, the cost of ownership has gone up and how many can afford increased rates such as these", Bali added.

And if you thought this was all, lenders have also quietly increased processing charges for car loans. "Earlier we used to charge 1.5% as processing fee, but now we have been told by ICICI Bank that the same would be 2%,ICICI Bank's DSA said. Kotak officials maintained that their processing charges were unchanged at 0.5%.

Car buyers are showing increasing interest in preferring to borrow a personal loan than a car loan. According to a SBI spokesperson, a personal loan from SBI can be availed at 12.75%, while car loans for up to 3 years can be availed at 11.5% and goes up to 12% for a seven year loan.

(Courtesy: Economic Times)


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