Car Loans: How to get the best out of your Car Dealer

Thanks to the booming economy and rise in pay packages, the purchasing power of the middle class Indian has ballooned. And for many, there is nothing better to show off the newfound prosperity than a brand new car.

Buying a Car is easier and perhaps more incentive laced than ever if you decide to take the car loan route. Step into a dealership, choose your car, ask for the finance schemes available and get bombarded with benefits and discounts that the staff will claim are `unmatched`. The dealer will tell you that he is offering you the best possible deal on the interest rate and more than likely, it will be the best he can offer you.

But wait - A `best interest rate` does not necessarily mean the `best deal`.

That is because the overall process of the car going from the manufacturer to you, inculcates many other factors such as a financier`s discount, Direct Selling Agents (DSA) discount, a dealer discount and a manufacturer`s discount.

Nowadays, most dealerships are also DSA`s for financing entities, and believe it or not, that also means that you might not be necessarily getting the full plethora of benefits from your dealer. Let`s take a completely hypothetical situation as an example.

Jeet Sodhi wants to buy a mid sized car, the cost for which is Rs 6 lakhs, against which he decides to take a Rs 5 lakh loan. Here, the bank will charge him 13% per annum for a period of three years, the EMI for which is calculated to be Rs 16,847.

What Jeet doesn`t know, is that the bank will actually be paying his dealer a commission of 3% for his role as a DSA. That`s a total of Rs 15, 000, all of which will go into the dealer`s kitty.

If Jeet is smart and aggressive, he can actually get his dealer to pass on at least Rs 10,000 of the commission to him. He can get the discount on the upfront payment that he makes or let the dealer build it around the interest rate and EMI. That said, the business of calculating EMIs may not be Jeet`s cup of tea, and so here it is best for him to take discount upfront, but only after he has bargained and frozen the lowest possible EMI.

Also, the carmaker may have declared a cash discount that the dealer may or may not pass on to Jeet. Here too, it`s best for Jeet to claim it as an upfront cash discount; it will positively affect the interest rate and EMI, since the loan amount will be reduced.