Lenders offer lower EMIs on car loans

State Bank of India's (SBI) festive auto loan scheme (which ends on January 31, 2014) offers auto loans at Rs. 1,689 per lakh. "We are offering maximum repayment period of seven years," said a senior official from SBI. Some branches of State Bank of Mysore are also advertising a scheme of Rs. 1,699 per lakh.

An analysis by loan syndication portal, Bank Bazaar.com reveals that the EMI for festive auto loans from prominent banks ranges from Rs. 2,137 to Rs. 2,199 per lakh, the interest rate ranging from 10.25 per cent to 16.5 per cent. As part of this offer, many banks have waived off processing charges.

Others like HDFC Bank are offering a flexible repayment loan repayment option of 12 months to 84 months. The bank's rate is currently 11.5 per cent to 13.75 per cent, depending on the segment of the vehicle. "We do not see any need for introducing any special scheme, our experience suggests that the customer usually prefers vanilla schemes, although we offer customized repayment depending upon his requirement," said Ashok Khanna, senior executive VP and business head, vehicle loans, HDFC Bank.

Bankers say the improved liquidity situation has enabled auto financiers to offer better packages for car loans. Said Sumit Bali, executive VP, Kotak Mahindra, "Interest rates have softened in the last two months as liquidity improved with all the forex coming in. So nearly everybody cut rates by 20-25 basis points, (100 bps = 1 per cent) including us. The cycle has now turned a bit and rates are due for hardening by say 15-20 bps but the competitive pressure in the car market is so intense, no one is willing to blink right now." Kotak took a 25 bps rate cut in October, added Bali. HDFC's Khanna said: "Rates can only go up now but we haven't taken a call on an increase yet."

Car loan rates currently hover between 10.25 per cent and 16.5 per cent depending on the tenure and loan size, the large slab covering better rates for pricier vehicles. Said Khanna, "The EMI amount is not fixed and varies upon the loan amount and tenure. Currently, our interest rate is 11.50-13.75 per cent depending on the segment of vehicle."

Auto financiers say apart from the liquidity situation, banks are also using this special intervention to tide over the post-Diwali lean season. The rate carrots up for grabs includes auto loans at base rate like IDBI, which offers loans at 10.25 per cent, the lowest in the market, and waives off the Rs. 1,000 processing charge; and 100 per cent financing on ex-showroom price of the car like Punjab National Bank, which also offers full waiver on upfront fee and documentation charges. Most banks went in for their rate reduction schemes in October.