The economic slowdown has made for some scary headlines in the last few months. Among those, slowdown in car sales is the most talked about, since it forms over seven per cent of the country’s GDP.
Several factors have led to this slowdown, increase in cost of acquisition being a major reason. Shashank Srivastava, Executive Director (marketing and sales), Maruti Suzuki India elaborates, this is mainly due to the changes in safety norms, conforming to which has led to a price increase of cars. The insurance charges and road taxes and registrations have also gone up. Uncertainties regarding the B-IV and B-VI emission norms have also led to a slowdown in car sales.
“Buyers are postponing their purchase decision due to weak market sentiments and the ongoing shift to BS-VI emission norms. We expect sales to pick up next year as BS-VI norms are implemented across the country from April 1, 2020 and liquidity scenario improves,” says Charles Frump, MD, Volvo Car India.
While sales picked up in October, (Maruti Suzuki India recorded the highest deliveries ever during that period), it has again dipped in the month of November.
“Also, people tend to avoid buying cars in December since a month’s wait will reflect the vehicle to be registered in 2020, fetching a better resale value,” says Mohan Himatsingka, MD, Maurya Motors (dealership, Tata Motors) and former President- FDA ( Federation of Automobiles Dealer’s Association).
Naturally, carmakers have been providing incentives to customers to push sales. First, they are offering discounts to bring down the cost of acquisition and we can expect such discounts to continue in December. “These discounts range from seven to nine per cent of the value of the car. Plus they are offering free gifts, surprise gifts and other incentives to lure the customer,” Himatsingka further adds.
You are likely to get a very good deal on your car purchase now. So, look for cashless insurance, check that there are no hidden charges, look for on-road financing and negotiate to include registration costs on it. Also, make it a point to include extended warranty and annual maintenance contracts.
Carmakers are providing incentives to reduce the financing cost and make owning a car easier. This includes reduced down payments, financing the on-road price and also the inclusion of price of accessories and registration in the loan amount.
Himatsingka suggests that it is important to do your homework before buying a car. When you study what is being offered by other manufacturers and dealers, you have a better negotiation capacity and can crack a better deal.
Srivastava clears the confusion regarding BS-IV vs BS-VI cars. Customers need to remember that both BS-IV and BS-VI petrol cars can run on the same petrol, but the diesel cars do not run on the same diesel. So, they can go ahead and buy BS-VI petrol cars now. 70 per cent of Maruti’s total petrol vehicles are BS-VI compliant, with the carmaker pushing to adopt the new technology much before the April 1, 2020 deadline. “We have seen that when given a choice, customers are preferring the BS-VI cars even if it means paying a little extra. The extra cost is about Rs8,000-10,000. Not only in Tier I, but even in Tier II and III cities people are preferring these cars. They are concerned about reducing emissions when it comes to the cars they drive.”
When it comes to Electric Vehicles (EVs), Srivastava says there are still three major barriers (prohibitve prices, lack of charging infrastructure and consumer anxiety) to overcome before becoming popular.
“There is almost no sales of EVs yet,” he adds. However, they are the future. Frump says, “EVs are going to change how we drive. Volvo cars is leading the shift to EVs globally. We have taken a pledge that 50 per cent of our global sales will come from EVs fully by 2025.” He adds that India is taking steps toward creating a suitable ecosystem for EVs. The government recently eased setting up of public charging infrastructure and now an individual can also set up the charging unit. Such measures will lead to faster adoption of these cars.
The other important aspect of buying a car is finance. With the Reserve Bank of India (RBI) lowering repo rates, car loans have become less expensive. “Almost all banks have reduced their car loan rates ever since the RBI started its rate cutting spree,” says Naveen Kukreja, CEO and Co-founder, Paisabazaar.
For example, State Bank of India (SBI) has reduced its lowest car loan card rate by 65 basis points (bps) to 8.80 since May 2019. Those making car loan application through SBI’s Yono app or those availing loan for purchasing an EV can get an additional concession of 25 and 20 bps on interest rates respectively.
However, CS Sudheer, Founder and CEO, IndianMoney.com, says that banks are generally slow to translate a fall in interest rates. “Banks have transmitted around 30 out of the 75 bps repo rate cut in the last few months. So yes, car loan rates are definitely coming down, but not as fast as the repo rate cut. Some banks have also waived off processing fees,” he further adds.
How does this translate into savings if car loan rates are slashed from 9.15 per cent to 8.8 per cent? This is a 35 bps cut in car loan rates. So, the EMI on car loan worth Rs10 lakh would reduce from Rs16,165 to Rs15,988. You can calculate these figures from any car loan calculator. This translates to a saving of Rs15,000 on the total interest component. So yes, customers do benefit from a cut in car loan rates.
Banks offer a wider range of options in terms of loan amounts, tenures, interest rates and EMI repayment options. These loans may also have other added features that customers may want to explore, such as additional insurance and top-up loans. So, the first choice for car buyers is always the bank. However, in some cases, they can also avail finance from a vehicle finance company.
“Banks take your credit score into account while considering you for a loan. So, if your credit score is not above 750, your chances of getting a loan may be less. In such situations, a vehicle finance company or dealership may be able to help you with a loan, though it will come at a substantially higher rate of interest,” says Pankaj Bansal, Business Head, Account Management, BankBazaar.
Kukreja advises car loan applicants to fetch their credit reports from credit bureaus, at least six months prior to making the loan application. Not only do those having good credit score (750 and above) have higher chances of loan approval, but an increasing number of banks and other lenders have also started to factor in the applicant’s credit score while setting their interest rates and processing fees. “Hence, prior fetching of credit reports will allow loan applicants to take corrective measures for improving their credit score and avail loans at better rates and other terms and conditions,” he adds.
He also advises that loan applicants should try to broaden their car loan comparison by including as many lenders as possible. After all, car loan interest rates, processing fee, LTV ratio and other loan features can vary widely across various lenders.
The best way to do so is to visit online financial marketplaces for comparing various car loan options offered, based on the applicant’s credit score, monthly income, car model, job profile and other eligibility criteria. Applicants should also check out the interest rates and other loan features offered by the dealer finance and captive car finance companies before taking the final call.
Another thing to consider before selecting a car loan is the prepayment charges. “Prepayment and preclosure can bring down the amount of interest you are repaying substantially,” states Bansal. But there are certain things one needs to keep in mind. While lenders allow borrowers to prepay a part of the car loan after a certain number of EMI (usually 12-24) payments, they may charge a percentage of the prepayment amount as a prepayment fee. Similarly, you can also choose to pay the loan amount in full before the end of its tenor, but that may also invite a preclosure fee, which is again a percentage of the remaining principal amount that you pay to preclose the loan. However, not all lenders charge preclosure or prepayment fees, and you must check on these charges before going ahead with the loan. Sometimes, it may make sense to fund your car purchase through a personal loan. Sudheer says, “Most lenders fund up to 80 per cent of your car’s cost. If you cannot finance or arrange the remaining amount, the ideal option would be to take a personal loan. You can avail a personal loan to finance 100 per cent of the car’s on-road cost.” He adds, a personal loan makes sense if you have a good credit score to take a personal loan where you get the entire cost of the car as a loan and also at a competitive interest rate. On the other hand, if you have a low credit score it is better to fund up to 80 per cent of the car cost through a car loan. Finally, car buying has moved from being just a transaction to being an experience. With customers having become more tech savvy, the experience has increasingly become digital. For Maruti, out of the 28 sales touch points, 21 have now become digital. This has reduced the number of visits to the showroom. Customers are looking for a more personalised experience and manufacturers and dealers are evolving to meet the needs of the customer. Also, after sales service and even the price of used vehicles play an important role, as customers tend to change cars every few years and a good resale value brings down the cost of acquisition.
If you are looking to own a set of dream wheels, there is no time better than now.
anaghpal@outlookindia.com