Click here to get this post in PDF
While availing of a used-car loan, if you think the interest on the loan is the only extra you pay on the loan amount, that is not the case. There are numerous fees and additional charges that you must pay out of your pocket. Some fees are mandatory, while others are contingent on your actions during the loan term. Aside from these fees, the lender provides two types of used car finance rates. Here is all you need to know about these interest rates and fees.
Type of Car Finance Rates
Fixed Interest Rate: A fixed interest rate on a used car loan does not change during the loan’s tenure. This enables the borrower to anticipate their future payments with accuracy.
Floating Interest Rate: This type of car finance rate changes every quarter. The rate of interest charged on your used car loan is pegged to the benchmark rate or the base rate that the Reserve Bank of India determines. The RBI determines this rate after considering various economic factors. Whenever the interest rate changes, your used car finance rate will also change.
Charges Associated With Your Used Car Finance
Processing Fees
The processing fee is the most essential and common price levied on second-hand car loans. It is a cost that you must pay to your financial institution to get the second-hand car loan processed. It is a one-time cost that is usually paid beforehand. It means you have to pay this charge to the financial institution out of your own money. The processing fees on your used cars in phoenix would not be deducted from your loan amount. It is sometimes referred to as an administrative fee also.
Foreclosure Charges
One of the most important priorities of borrowers is to pay off their loans as soon as possible. Whenever you avail of a loan, you would have planned for a loan foreclosure. But did you know that the second-hand car loan foreclosure process comes with additional charges? Your financial institution may levy a fee, commonly referred to as foreclosure charges, on this.
The financial institutions levy a foreclosure penalty to compensate for the interest earnings lost due to the early repayment of the loan amount. So, if you wish to pay off the second-hand car loan early, you should compute the foreclosure charges and examine your financial situation to reduce the amount you have to pay back.
Loan Rescheduling Charges
When the borrower finds it difficult to pay off their second-hand car EMIs, they might request their lender to reschedule their used car loan. Under this process, the original repayment schedule or arrangements are changed due to the borrower’s incapability of the EMI payment. To put it another way, rescheduling, often known as debt rescheduling, is a method of reorganising debt repayment.
However, if you plan for a loan rescheduling, your lender may levy some fee or penalty, known as loan rescheduling charges.
Overdue EMI Charges
If you have taken out a used car loan but fail to pay your dues on time due to some financial cash crunch, then such situations are known as loan overdue amounts.
As the name implies, the loan overdue amount is the amount that has not been paid even after the payment due date. Assume a customer has a second-hand car loan EMI of Rs 5,000 due on a specific date. This amount will be considered the overdue loan amount if he fails to pay this EMI by the due date.
On this due EMI amount, the financial institution will begin charging an overdue interest rate. As a result, if a person consistently misses EMI payments for an extended period, there will be an increase in loan outstanding due to additional interest on late EMI payments along with various penalties.
Documentation Charges
Whenever you apply for a second-hand car loan, your lender may ask you to pay for your documentation. Apart from the used car finance rates, the lender charges you for getting your loan agreement signed, activating the ECS mandate, and a few other formalities. The documentation fee is nominal and can range anywhere between Rs 500 and Rs 1,000.
Apart from the above-mentioned charges, the financial institutions may also charge for stamp duty, RTO transfer, ECS swapping, legal, repossession and incidental fees. Your lender may also charge you for part prepayment if you are willing to pay the large sum of money before its actual due date.
To Conclude
You can effectively plan your budget if you are correctly informed about your used car finance rate and associated fees. This will assist you in the timely payment of your EMI, allowing you to retain a positive credit history.
You may also like: 6 Important Things to Consider Before Applying for a Car Loan
Image source: Depositphotos.com
