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Why To Avoid Special Car Financing Schemes Amid COVID-19?

Olga Robert

April was a zero sales month for automakers as showrooms and production sales remained closed across the globe and exports were paused. Sales were far from normal even as retailers reopened for business in the month of May.

Vehicle manufacturers, who have been facing a slump in domestic sales for nearly a year now, have rolled out special financing schemes amid COVID-19 outbreak to attract customers.

Pay later options

Maruti Suzuki, Renault, Mahindra, Hyundai, Nissan, Skoda and Volkswagen are currently offering 'Buy Now, Pay Later' schemes, where customers can start paying EMIs on the car loans a few months after the date of purchase.

Maruti Suzuki, Hyundai and Renault are allowing customers to postpone the start of repayment by 2 or 3 months, whereas, Mahindra and Nissan are willing to delay EMI payments to the start of 2021, on select cars and based on customer eligibility. Skoda and Volkswagen are allowing customers to seek an "EMI Holiday" for as much as 12 months, on select models.

There are more options like Step-Up EMI, wherein your EMIs start with small payouts and then repayment period stretches over the next one or two years. There is also an option to stretch the tenure of the car loan to 60 months, wherein, the larger part of the loan will be paid as the last EMI.

If you have plans to purchase a car amid the COVID-19 pandemic, here are some points to consider before you decide to opt for one of the "attractive" loan and EMI schemes offered by retailers in India.

Interest burden

Step-up EMI or balloon type of loan repayment schemes (5-year loans) are known to be more expensive than a regular loan scheme as the overall interest burden becomes larger.

If you wish to save on overall costs, you can opt for a shorter tenure car loan as interest burden will be less when compared to longterm loans.

Credit score could be hurt

If you choose to opt for the 'buy now, pay later' scheme, even in the initial months before your EMI starts, the interest will keep accumulating. Further, if you fail to start repaying when the 'EMI holiday' ends, your credit score will be impacted.

Regular loans are currently cheap

Lending rates offered by banks have been rapidly falling after the 1.15 percent cut by RBI in repo rate to a record low of 4 percent. This means that regular auto loans are attractive at the moment and will stay cheap at least till the end of 2020 as the central bank will look keep the rates low to push economic growth in India.

If you have a good credit score, you can negotiate with the bank or other financial institution, to get a better car loan deal.

Further, the car financing schemes offered by these brands are specific to certain models only. You can, instead, choose a car model of your liking and opt for a regular loan.

Check and compare additional costs

Make sure to check processing fee, pre-payment and other charges associated with the financing schemes or even a regular car loan.

Future remains uncertain amid the pandemic

Postponing payment using these schemes may not be a good idea, especially pushing large payments for the future. This is because the future is uncertain in the current pandemic situation. You could face a salary cut or even job loss in a year. Moreover, a car is a depreciating asset, which means that its value is lost with usage. You may end up spending more than the real worth of the car.

Tax benefits on electric car

You can seek a deduction for interest payments up to Rs 1,50,000 under Section 80EEB on a loan to purchase an electric vehicle for personal use or for business use. If you consider this option, you can widen your choices for your vehicle purchase plans.

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