The Skoda Rapid Finance Whirlpool

Buying a car now and paying for it later… Sounds tempting, but is it really a good deal?

You are planning to buy a Skoda Rapid but you can’t afford it right now. There’s enough money for that down payment. The problem is the salary, which you expect will go up in a year to afford the loan’s EMIs. And the understanding of this very expectation seems to be the basis of Skoda’s ‘Buy now, Pay in 2015’ plan.

The finance scheme has been formulated in a way that all you have to do to own a Rapid is give a 20 percent down payment and Rs 1 for the first year of your loan tenure. 

It’s January 2014 and you’ve decided to sign on the dotted line at 7.99 percent interest rate, 20 percent down payment and the scheme-specific EMI schedule. The down payment will range from Rs 1.54 lakh to Rs 1.95 lakh (at ex-showroom Delhi prices) depending on the Rapid variant you pick. Then, for the next 12 months, you pay only the ceremonial Rs 1. For the rest of the year, you are enjoying the nearly Rs 10 lakh Rapid paying just under Rs 2 lakh. 

Now 2015 is around the corner and you are in line for a increment. Your calculations back then in January depended on a raise at the end of the year. You’ve just got that raise and you remember the Skoda finance guy informing you that in the second year of the loan tenure, you will be paying Rs 15,000 every month. You had factored it in so things are according to plan. But think about the flipside… The raise didn’t come as expected and the calculations are starting to go haywire. If you can’t pay the EMIs, the financier recovers the car and adds you as a defaulter with CIBIL, the credit rating bureau. Your credit rating tanks and getting another loan almost becomes impossible. 

But that’s with every loan defaulter. You only take a loan if you can afford to repay it. Increasing EMIs are bad news if you aren’t growing faster financially than your EMI amount. In the Rapid’s case, that first year when you aren’t paying for EMIs is the year you should be saving up. Read on to know why... 

In the second year, you pay Rs 15,000 every month irrespective of the variant you have picked. 2016 onwards, for the next 23 months that EMI figure goes up to Rs 22,222, again for all variants in the Rapid line up. It’s the last month of the tenure that delivers the knockout punch at your bank account. A finance officer at a Skoda dealership we spoke to used a banking jargon for the last EMI, very aptly coined, a ‘bullet’ payment. It’s essentially all the outstanding money at the end of the tenure. This amount will range from Rs 24,681 for the base petrol variant to Rs 282,808 for the top end Rapid diesel variant. 

You read that right… You will have to pay Rs 2.82 lakh as an EMI amount on a Skoda Rapid Elegance diesel on the 48th month of your loan tenure! 

Does this finance scheme make sense? This type of finance is called step up loan methodology. It’s a good concept, we grant that. Every individual has aspirations and targets in life and buying a bigger car is almost always one of them. If a scheme is giving you a chance to purchase a larger car when you can’t afford one at the moment, it is tempting. But in Skoda’s case, to achieve that fixed figure of Rs 15,000 per month in the second year and Rs 22,222 in the next 23 months for all variants, the final EMI figure goes a little out of hand in the higher variants. This new Skoda finance scheme as a result seems the most logical only for the entry level petrol variant. 

A few dealers we called informed us that although the scheme is applicable on all variants across India, the base diesel variant is only available but you will have to check for availability in your region. 

There’s another catch to the scheme – you can only avail of it before the year ends. This benefits Skoda in two ways, get a much needed sales push in December which is generally a weak sales month if the scheme works, and offload as many 2013 manufactured models as possible, most of which are offered at high discounts once the new year begins.

Last Month EMI –