Should you go for Teaser Rate Car Loan?
Many lenders provide attractive offers to entice customers. Offering such deals makes them compete with other lenders in the financial market. The customer gets the opportunity to look for many options so that he can select the reliable offer on the basis of the requirements like amount, interest rate, tenure and EMI.
The financiers are coming up with innovative approaches to attract customers in this regard making each new offer more tempting and irresistible. The teaser rate car loan has been introduced recently in the Indian markets.
What is Teaser Rate Car Loan?
1) It is a loan where Rate of Interest varies as repayment progresses (typically being 8% in the initial year and 10% in the second and third years).
2) The benefit of this loan variant is that the EMI burden is less initially giving way to adjust financial requirements after having paid the down payment from his savings.
3) In a teaser car loan rate of interest in the initial years in lesser than conventional car loan interest, but increases subsequently to make up the losses incurred by the financiers.
Features of Teaser rate Car Loan
There are many features that differentiate a teaser rate loan from the traditional car loans are:
1) The borrower makes the minimum down payment of 15% of the car’s on the road value before getting the loan.
2) For the used car, the amount available is less as compared to a new car teaser loan.
3) There is a restriction of two and half times the annual income of the applicant. This limit may be enhanced in case the earning the earning partner becomes the co-applicant in the car loan.
4) In case the borrower decides to extend the tenure of the loan after initial years, there is an added penalty of about 2% of the sum repaid at lower interest rate.
5) The total interest charged for the loan tenure is in accordance with the Base Rate announced by the RBI.
6) The processing fee for the teaser rate car loan is lower than conventional loans.
Although the initial interest burden on the borrower is less in case of teaser rate car loan, there exists certain other criteria that must be considered before opting this loan. The overall cost of the loan repaid becomes much higher than the overall value of the car.
The variant that the teaser rate brings a steep change in the EMI after the initial two years. Thus while a teaser rate car loan may appear attractive prima facie there are these cost associated aspects that the customer needs to know and estimate prior to availing the facility.