Why an overdraft loan is better than installment loan

Will you be better off going for an overdraft loan facility for your car loan? Or should you go for the general installment loan?

If you prepay an overdraft loan or a general installment loan, are you charged a penalty?

Part I -- Taking a car loan? What you need to know

Palamon asked, Hi Harsh, some people suggest that we take a personal loan (or two) to buy a car, rather than taking a car loan. What's your take on that?

Harsh Roongta answers, A personal loan is likely to be far more expensive.

ritesh asked, Hello Mr Roongata. My budget is up to Rs 7 lakhs. Which finance company will be best for me? What is the minimum period for which I will have to pay minimum interest, and for that period what will be the EMI? Can I get tax benefit on this loan amount? If yes, how much?

Harsh Roongta answers, As far as tax benefits go, unless you are a self-employed person and are using the car for the purpose of your business or profession, you will not get any tax benefits. Other questions have already been answered earlier in the chat. Request you to read the transcript.

rajesh asked, I plan to buy a mid segment car, my loan amount is Rs 3 lakhs. I would like to know which bank lends at the lowest interest rates? I have heard of Kotak Mahindra is charging interest as low as 6.95 per cent. Can you please give your advise on this?

Harsh Roongta answers, Obviously a rate of 6.95 per cent has a catch in it. This has to be in lieu of the cash discounts you can otherwise get. 

Mr. Mathewthomas12474 asked, Hello, Mr Harsh Roongta. I like to buy a car like say Skoda. Would I benefit if I buy the car outside Mumbai limits? Please help me in finding a best deal in this situation. Thank You.

Harsh Roongta answers, Most dealers in Mumbai will offer you an ex-Thane registered vehicle. However, if you are from Mumbai, it is not advisable to register your car outside Mumbai just to save on octroi. Your vehicle might be stopped on the road while checking is going on. Bite the bullet as far as the additional costs and register your vehicle in Mumbai if you stay in Mumbai.

amitgoel asked, Hi Harsh, I took a car loan from the Punjab and Sind Bank at 11 per cent rate. Is the deal good?

Harsh Roongta answers, It's impossible to say. As I mentioned, the interest rate is a function of many things, hence it would not be possible to comment on this.

Yash asked, Hi Harsh, I am looking to buy a WagonR and planning to go for a loan of Rs 3 lakhs. Is this a good move? I am being offered a rate of 13.75 per cent by UTI Bank.

Harsh Roongta answers, Whether WagonR is a good choice or not will depend on your specific requirements and preferences. As far as the car loan is concerned, I would advise you to shop around a little.

Tarun asked, What is the difference between Overdraft loan & Installment Loan. Under what conditions is one better than other?

Harsh Roongta answers, In an overdraft loan, you can continuously keep depositing or withdrawing money as and when needed subject to a maximum amount of outstanding. The advantage is that you are charged interest on the exact amount used by you during the month, versus an installment loan where you pay fixed EMIs every month and pay hefty pre-payment penalties if you decide to prepay the car loan.

Overdraft loans however are more expensive to start with and hence make sense only if you are likely to have surpluses in the future on which you wish to save interest.

bikrant asked, I am an low income NRI in gulf. I am planning to buy a budget car with a loan. Please advise me the points I shall consider while negotiating loan with the bank. Thank you.

Harsh Roongta answers, Please see the following link: https://www.apnaloan.com/articles/car-loan-india/car_loan_best_rates.html.

asgsadg asked, Hi, Are there any tax benefits available on Car Loan interest / principal repayments for salaried person?

Harsh Roongta answers, No.

nag asked, I am planning to buy a Baleno 2004 for Rs 4 lakhs loan from a nationalised bank. They do not have the penalty for the pre-payment of loan. Will you suggest that I go for a 6-year or a longer payment plan or the shorter period?

Harsh Roongta answers, If they do not have a pre-payment penalty, then you can choose a longer tenure so that the contracted EMI is lower. As and when you have surplus, you can prepay the loan partially and reduce your interest cost.

Part I -- Taking a car loan? What you need to know

Tomorrow: Part III