It is always recommendable not to take Vehicle Loan from your Dealer. Take loan separately from a banker.
This is basically for the misleading method of EMI calculation by the Dealers. A 1 Lac loan repayable in 3 years leads to an extra payment of Rs. 15,000/- approximately. You can understand the thing with the following example:
CAR LOAN OFFERED BY SHOWROOMS
| As per Showroom’s Calculation | ||||
| On Road Price | A | 1,00,000 | ||
| Down Payment % | 30% | |||
| Down Payment | B | 30,000 | ||
| Loan Amount | C = (A-B) | 70,000 | ||
| Rate | 12.5% | |||
| Tenure (Yrs.) | D | 3 | ||
| EMI | -2,769 | |||
| Actual Interest they are charging | ||||
| On Road Price | A | 1,00,000 | ||
| Down Payment % | 30% | |||
| Down Payment | B | 30,000 | ||
| Loan Amount | C = (A-B) | 70,000 | ||
| Rate | 12.5% | |||
| Tenure (Yrs.) | D | 3 | ||
| Future value of the loan as if you are paying at the end | E | -99,668 | ||
| EMI | F = (E / D * 12) | -2,769 | ||
| Actual Calculation of RATE by Reducing Balance Method of EMI CHARGED | 24.6% | |||
| Total Payment by you | 99,668 | |||
| Original Loan Amount | 70,000 | |||
| Interest Payment | 29,668 | |||
Calculation as per Reducing Balance Method
| On Road Price | A | 1,00,000 | ||
| Down Payment % | 30% | |||
| Down Payment | B | 30,000 | ||
| Loan Amount | C = (A-B) | 70,000 | ||
| Rate | 12.5% | |||
| Tenure (Yrs.) | D | 3 | ||
| EMI | -2,342 | |||
| Actual Calculation of RATE by Reducing Balance Method of EMI | 12.5% | |||
| Total Payment by you | 84,303 | |||
| Original Loan Amount | 70,000 | |||
| Interest Payment | 14,303 | |||
| Excess Interest you are paying just because of lack of awareness | 15,365 | |||
Now, just think, if your loan amount is Rs. 10 Lacs, that means you are paying 1,53,650/- extra and so on.
