Every individual makes an effort to get a good bargain on a loan. In simple words, there would be a lower interest rate and easier loan conditions for the borrower. This will ease up the entire servicing of the loan, making it easier to repay over its entire life.
Seema is looking for some extra benefits in a car loan she is proposing to take in the next one month. Her primary concern is that under normal circumstances the bank will charge her 12 per cent on a loan. So she is looking for a way that will ensure a lesser loan burden for her by making her pay lower interest. She is also considering whether being a credit cardholder or a past customer of a specific bank will actually help her in her efforts by providing some relief in terms of stringent loan conditions.
Analysis
Banks are very clear about whom they will grant a loan and on what conditions. Only those people who meet the conditions get the preferential treatment, and hence one has to see whether this is something that can be made use of and how he/she can actually gain from the entire situation. There are specific areas where this is possible.
The first area where the benefits of a preferential treatment are available is the premium credit cards. Some banks offer a better deal for their own cardholders while a few private banks might offer this on other banks' cards too. The card has to be used for a specified time period like 1-2 years and recent statements have to be produced to show that this is in use. If Seema is a premium cardholder then the deal will either provide her for a higher finance or a slightly lower rate of return.
For example, if Seema is a gold cardholder then instead of regular 60 per cent financing, she might get 70 per cent finance. This could mean that for a Rs 6 lakh car she would be able to get a Rs 4.2 lakh loan, a savings of Rs 60,000 which she would otherwise have invested upfront. In case of an interest change, this could mean that instead of the normal 11 per cent, she would be charged 10.5 per cent. For a Rs 4 lakh loan for 3 years, the savings will amount to Rs 3,420 as the EMI drops from Rs 13,095 to Rs 13,000 for the life of a loan.
Another benefit for Seema is that she might not have to submit income proof documents. For customers who fall in an existing service category – high net worth or premium – taking a loan might not require any proof for the income. So, for example, a platinum customer could have 80 per cent financing, up to Rs 5 lakh without any income proof. This can save a lot of effort in terms of paperwork but the disadvantage is that the amount of the loan will already be determined so this might not suit the borrower as much as expected.
If Seema has a fixed deposit with her bank then this also might get her better conditions with respect to her car loan. The deposit acts as a lien, serving as the necessary security for the loan. However, there might be some difference in the amount of the deposit required. Seema might be asked to deposit an amount equivalent to the margin on the loan. So a Rs 5 lakh loan might require a Rs 3 lakh deposit and so on. The benefit could be a loan available for a higher amount and easy processing but a large amount will be locked in for a considerable time, which might not be feasible for a lot of people. Further, it might be a better idea to invest the amount of the deposit elsewhere and take a loan under the normal conditions.
