Car loans to get expensive in 2011

Lucrative discounts and attractive offers on cars is a thing of the past and the new year brings a little bad news for those planning to buy their dream car. 2011 will bring cars at higher price tags and EMIs will be steeper owing to increasing input cost.

Big financiers like Kotak Mahindra Prime and ICICI Bank owing to the liquidity crunch, are set to take an up swing by 25 to 50 bps. Whereas a decision of holding interest rates, and increasing the rack rates by pulling back their discounts by 25 to 100 bps is taken by HDFC bank.

The top three financiers are planning a lending rate hike in coming two days. Addressing the issue, Sumit Bali who is the chief executive officer of Kotak Mahindra Prime, the car financing arm of Kotak Mahindra Bank commented that in coming 2 days, the company will disclose their rate hikes which will be above 50bps taken last month. He said that as a result, the range in which the rack rates lie will be between 11.75 to 13 per cent.

ICICI Bank, the fellow car financier is also looking forward to increase the car loan rates and is working towards the proposal. Coming to the HDFC Bank, another important car loan provider, has decided to cut down the discount it was offering rest will remain the same.

Addressing the issue, Ashok Khanna who is the senior executive vice-president and business head auto loans in HDFC Bank commented that the company will hold the 25 to 100 bps discounts and the rack rates will lie between 10.5 to 11.75 per cent for a tenure of 36 months.

The story will not end here as the financiers expect to face another big round of rate hikes in coming four to six weeks owing to the liquidity crunch.

In simple words, the increase of 50 bps is equal to hike of EMI by Rs 25 per lakh in a tenure of thirty sic months. That means if you buy a Hyundai i10 for Rs 4.2 lakh at a loan of Ts 3 lakh, the outgo hikes up by Rs 75 every month which will amount to Rs 900 every year. An amount of 2,700 Rs will be paid additional in a period of 3 years.

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