SAVE MONEY BY REFINANCING AN AUTO LOAN-Is It Really Smart To Opt For A Refinancing Option In India
THE SMALL CAR SEGMENT-Ford Figo
REFINANCING A LOAN-WHAT IS THAT?
Any loan such as a car loan can be refinanced by a different finance company, where they pay off your loan and you get to repay the loan they gave on your behalf at a lesser rate of interest over a longer tenure. If you are not currently happy with your car loan, you could look for some refinancing options.
Who needs to use the refinancing option ?
- You may already have a car loan and are planning on building a house, or in need of an education loan for your son/daughter.
- Or the dealer whom you bought the car from had a tie-up with a certain bank and you opted for the car loan at an interest rate you now find to be very high.
- The interest rates may have come down from the time you went in for the car loan.
- Sometimes, you may have more than two loans which might be a burden.
- You may have lost a source of income.
Anyone wanting a solution for the above problems, could consider going in for an auto refinance. But not everyone will benefit from it. So, weigh your pros and cons carefully before making a switch.
- Agreed, the refinancing might give you a longer tenure for repayment, with reduced rate of interest, which means you save money every month. But, most banks and financial institutions levy a penalty for foreclosure of a loan,especially if another finance company is taking over your loan. I was asked this question by my bank when I went to prepay my car loan. Since I paid the remaining loan amount in full without the help of a refinancing bank, I was not charged any penalty. But, all banks are not the same, and it pays to know your bank's manager. You can work around this one by taking another loan to pay off your first, repaying this loan with lower EMI's (Equated monthly Installments).
- The increased period over which one can get with a refinance option must be taken into account as you may be due for retirement before that period. Which means the repayment may eat into your retirement funds.
- The increased tenure at a lower rate of interest saves you considerable money.
- If you are opting for refinancing your car loan in order to avail of another loan, it is wise to sit down and make a financial assessment of your earnings and expenses in order to arrive at a comfortable repayment of all your loans.
So, should you opt for it ? Make your own decision after careful consideration of all the factors above in addition to your own age and financial resources.If your prepayment penalty equals or is more than the amount you save with the refinancing, you may need to reconsider. But, it is wise to find several refinancing companies to see which one suits you best in order to save some hard earned money.
THE MID-CAR SEGMENT-Tata's Sumo Grande Vs Mahindra's Xylo
ELIGIBILITY FOR REFINANCING A CAR LOAN AND DOCUMENTS REQUIRED
Most banks expect you to have a good financial standing with them. So, your local bank with your existing account is the place to begin.
You must have a steady income either salaried or self employed. You need to furnish your salary slip and a statement of accounts with the existing bank for the last 6 months.
Your car on which you wish to take a loan must be less than 3-4 years, and in good condition.
Your car's RC book(Registration certificate), Insurance certificate, Permit from the RTO in case of a commercial vehicle are to be handed over and you will be given a copy of each to keep with your car. The car's duplicate keys are to be also given.All these will be returned to you once you clear off your entire loan. Since the originals of these documents must be with the car at all times, for a penalty fee will be levied if caught without these by the RTO or the Traffic Police, banks may agree to have a notarized copy of all the documents.
Your Driver's license copy serves as proof of identity and proof of residence such as a Government Landline telephone bill are a must. For proof of identity, your passport or PAN card or Voter's ID can also be shown, and a copy given.
The High End Car-BMW series
HOW MUCH MONEY CAN YOU SAVE
The earlier you choose a refinancing option on an existing loan with higher rate of interest, the better. If the difference in rate of interest is 2 % you will save more than if it was just 1 %. Again, the longer tenure chosen, will bring down the EMI considerably. Finding the best refinancing company that suits your financial needs is key to saving you money. And do not forget the penalty on the foreclosure of your original loan.