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  Sunday, 24 November 2013
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i have to take car loan, which is better offer at 10.75% Floating interest rate scheme of SBI Bank or going at 11.25% with Private banks like ICICI Bank or HDFC Bank. do take time horizon as 5 yrs for suggesting it
10 years ago
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#2208
Hello,

To understand it better, lets know the concept first

PLR - Prime Lending rate, also known as Base rate which changes due to RBI Policy to economic situation to several other factors. It actually govern in the FD Rates and borrowing rates as interest rate is determined basis margin over PLR for example Auto loan as PLR+2%. So if plr changes - thus is Auto loan rate changes

Fixed Rate - Interest rate is locked in, at time of disbursement of loan and does not vary in basis the PLR. It remains constant through the loan tenure. Especially useful when you foresee that you are already on low interest rate regime and does not expect a significant drop or rather predict an increase in rates.

Floating Interest Rate - Here Interest Rate as applicable on date of disbursement gets linked to PLR. useful wherein you predict that interest rates are higher and expected to fall in coming year.

So SBI - 10.75% rate though looks attractive, but its upto a view that its an floating rate, if economic situation improves - you can expect this rate to even fall down further and thus cut in the loan tenure from 60 months to 59 or 58 months. However - if economic situtaion gets worsened and RBI, due to inflation raises rates - thus PLR rate of SBI will increase and hence will impact your loan interest payment through an increase in tenure too

If you do anticipate an increase in rates or avoid this volatility of Interest rates - its best to go in with ICICI Bank or HDFC Bank - where the interest rate gets locked down and same rate will prevail in across the tenure of loan

To give you a practical real life example of New Car Loan Interest Rate Trends
Car Loan Interest Rates in 2006 - 9% - 10%
Car Loan Interest Rates in 2007 - 10% - 12%
Car Loan Interest Rates in 2008 - Peaked at 17.5%
Car Loan Interest Rates in 2009 - Fall down to Lowest @ 11%
Car Loan Interest Rates in 2010 - 9% - 11%
Car Loan Interest Rates in 2011 - 12% - 13.5%
Car Loan Interest Rates in 2012 - 11% - 13%
Car Loan Rates in 2013 - 10.45% - 12.5%
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