In India, most people
do not buy a new car because of the financial burden. Today, various types of a
car loan available in the Indian market. It helps the person to choose the loan
that suits their requirement. Several banks or lending institutions provide car
loans at the lowest interest rates. Person has to know about car loans
criteria, before applying for a car loan.
The car market provides
two types of a car loan: floating and fixed. It is up to the person to choose
one of them. If people go for fixed loan then, interest rates will same during
the tenure period. If people go for floating loan then, interest rate will
change according to the market fluctuation.
It is suggested to do a
detailed research on the market, before applying for a car loan. In the car
loan market, loans have not seen a decrease for last 5 years. Interest
rates kept on increasing. If a person takes the floating
rate loan, he has to pay the highest interest every month. If a person takes
the fixed rate loan, he has to pay the fixed interest rate throughout the loan
tenure. However, if a person has a strong market player and feel that rates are
not increasing then, person go for floating loan. If a person feels that rates
only increase in future, person can go for fixed rates.
Floating rate loan
essentially has 3 components:
The Effective rate: The
actual interest rates apply to a loan. Let’s assume it is 14%.
The Benchmark rate:
This is only a benchmark or reference rate, which is slightly lower or higher
than the actual rate. Let’s assume this is 12%.
The Mark up or mark
down: This is the difference between the actual rate and the benchmark rate.
For example, it is 14-12=2% or the effective rate is benchmark rate plus the
mark up of 2%.
Car loan lenders have
their own smart ways. They change only the mark up rate while keeping the same
standard rate. Hence, person will always have a fixed mark up rate during the
tenure period.
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