Before taking a car loan get details of all the charges that the bank will charge
Vivina Vishwanathan| Thu, May 23 2013. 07 36 PM IST| LiveMint.com

When you take a car loan, besides interest rate you should also know various other charges such as processing fees, prepayment charges, foreclosure charges, cheque swapping charges and late payment penalty. Though the charges may vary from bank to bank, most banks have similar categories of fees. However, there are banks that don’t charge a prepayment penalty.

What banks offer

Some banks such as State Bank of India, Bank of Baroda, Bank of India, Federal Bank and Canara Bank don’t charge a prepayment penalty, whereas banks such as HDFC Bank Ltd, Axis Bank Ltd and ICICI Bank Ltd charge prepayment penalty on car loans. The prepayment penalty again varies from bank to bank. For instance, HDFC Bank charges 5% on part prepayment amount in case it is done within 13-24 months from the first equated monthly instalment (EMI) or 3% on the part prepayment amount in case it is after 24 months from the first EMI. Here part prepayment is allowed only after completion of 12 months of EMI and part prepayment is allowed only twice. In case of ICICI Bank, part prepayment is not allowed.

Difference between prepayment and pre-closure

Prepayment and pre-closure doesn’t mean the same for some banks. Prepayment can be referred to as part-payment and and pre-closure as foreclosure of the entire loan. HDFC Bank for instance has different foreclosure and prepayment charges. In case of foreclosure, 6% will be charged of principal outstanding for pre-closures within one year from first EMI or 5% of principal outstanding within 13-24 months from first EMI or 3% of principal outstanding for pre-closures post 24 months from first EMI. Also no foreclosure is allowed within six months from the date of availing the car loan. However, for some banks both the terms turns out to be the same thing. For instance, Bank of Baroda states that there are no prepayment charges on pre-closure. In case of Federal Bank, there is no prepayment penalty, however the bank charges a penalty in case of pre-closure.

What should you do?

Before taking a car loan get details of all the charges that the bank will charge. Also check if the banks have different prepayment and pre-closure or foreclosure charges. Ask for the difference between the two terms in the banking parlance and whether there are different charges that will be levied. If you have surplus and wish to prepay your debt, first look at what that surplus money can earn from other investments.

Source: http://goo.gl/InACNL

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