Auto finance terms explained

While getting an auto loan these days has become a rather simple matter, the loan documents are filled with a lot of words that might be confusing to the average car buyer. So here's a ready reckoner for you to understand the what's what of auto finance


Auto finance terms explained



EMI stands for Equated Monthly Installments. The whole idea behind taking an auto loan is the fact that you can pay for your car in manageable monthly amounts, as opposed to the full lump sum (which if you had, would negate the point behind taking a loan in the first place). The total borrowed amount along with the interest is divided into fixed monthly installments over the period of the loan. These can either be deducted straight from your bank account (if you so wish), or through post-dated cheques.



PDCs or Post-Dated Cheques are cheques towards the repayment of EMIs. The cheques are dated for each month of the loan period. It ensures the financier that the person taking the loan is liable to honour the monthly payments.


Down payment

Banks or auto financiers will usually finance up to 90 per cent of the vehicle’s value. The remaining amount, which the buyer has to pay the car dealership directly, is known as down payment or the Margin Amount. The percentage of margin amount usually increases for more premium car models.


Late Payment Charges

When the monthly installment towards repayment of a loan is delayed the financier collects the installment along with the late payment charges. The late payment charge is also known as the delayed payment charges or the overdue payment charges. The late payment charges are fixed at the time of signing the finance contract.


Flat Rate of Interest

A flat rate of interest does not take into consideration the changing value (usually reducing) of money over time (i.e. inflation). This rate of interest is decided at the time of the sanctioning of the loan and stays the same throughout the loan period, taking into account the value of the currency at the time the loan is sanctioned. 'Flat rate of interest' is the percentage paid in excess of the finance amount, and is calculated on a per-year basis.



The repayment of the principal and interest components of a loan, over a period of time.



A hypothecation is an equitable charge on the goods without possession, but not amounting to a mortgage. The contract is done to secure a debt. Banks that give you a loan to purchase a car hypothecate the car in their name as security.


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