Keep these 5 things in mind before buying a car on a loan this Diwali..

As the festival of Diwali approaches, the automobile market becomes increasingly vibrant. During this festive season, car and motorcycle manufacturers roll out a host of attractive offers, discounts, and special deals to entice customers. Simultaneously, banks and finance companies offer vehicle loans with very low interest rates and convenient installment plans (EMIs). This is why many people prefer to bring home a new vehicle during the auspicious occasion of Diwali.

However, getting a vehicle financed in the heat of festive excitement—without careful consideration—could lead to future difficulties. Sneha Tiwari, who has worked in the loan department at ICICI Bank, advises that if you are planning to purchase a vehicle on a loan this Diwali, you should keep these five essential points in mind before making a booking.

Do not base your loan decision solely on a low EMI

Lenders often attract customers through advertisements highlighting very low EMIs. Avoid the mistake of opting for a loan just because the monthly installment appears small. Frequently, to keep the installment amount low, the loan tenure is extended significantly (for instance, to 7 or 8 years). A longer tenure results in a higher total interest payout. Therefore, always evaluate the total interest cost and processing fees, rather than focusing exclusively on the monthly installment.

Do not exhaust your entire savings on the down payment

When buying a vehicle, never spend all your savings on the down payment in an attempt to reduce the loan amount or the EMI. Always remember that a vehicle is a depreciating asset—its value declines over time. Ensure that you retain a secure emergency fund even after making the down payment, so that you do not face financial distress in the event of unforeseen circumstances, such as job loss or a medical emergency.

Carefully review loan terms and hidden charges.

Caught up in the allure of Diwali offers, customers often overlook the terms and conditions outlined in their loan agreements. Before finalizing a loan, ensure you fully understand the terms regarding foreclosure charges and pre-payment penalties. This determines whether the bank will levy additional charges if you decide to pay off the loan early, should you come into extra funds in the future. Additionally, inquire about any processing fees or hidden documentation charges.

Choose a loan tenure that suits your financial situation.

When deciding on the loan tenure, carefully assess your current income and anticipated future expenses. For a car loan, a period of 3 to 5 years is generally considered ideal. Opting for a longer tenure could result in paying significantly more in interest—far exceeding the actual cost of the vehicle. Structure your loan tenure so that your monthly EMI does not exceed 15–20% of your total in-hand salary.

Do not rush into a booking based solely on an offer.

Dealers often pressure customers to book immediately by claiming that an offer is available for a limited time only or that stock is running out. Do not make hasty decisions under such pressure. Before placing a booking, compare vehicle loan offers from various banks. Furthermore, check with two or three different dealers to verify discounts and offers on accessories. Only proceed with the booking once you are completely satisfied and have fully understood all the paperwork.

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