Photo Credit – News of Nigeria
Own a car in Nigeria and you have made it. Especially if it is a luxury or a sports car. Owning a car makes life comfortable and easy, as you get to avoid the hassles and rigors that comes with public transport. As a worker, this saves you valuable time as you can just drive off to work instead of patronizing the ever-busy public transport.
In the beginning, buying a new car was something to be celebrated, it still is as one had to part with a huge amount of money at a time. But now one can simply take car loan. Banks offer car loans with easy equated monthly instalments, which make it easier to afford a car without disturbing one’s budget.
Banks offer car loans with easy equated monthly instalments, which make it easier to afford a car without disturbing one’s budget. Lenders offer loans on new cars. However, the interest rates are different for different cars.
While applying for a loan, there are some eligibility conditions which one must fulfil, including age, minimum salary requirements, employment type and residence area.
- i) Identity proof such as passport, driver’s license, etc.
- ii) Address proof such as voter ID card, passport, etc.
iii) Age proof
- iv) Photographs
- v) Car documents
- vi) Income proof such as three months salary slips, six months salary bank account statement, latest income-tax return, etc.
Some lenders also ask for a car insurance copy and driver’s license before accepting the loan application.
When you buy through a loan, your car is hypothecated to the lender. Hypothecation gives the right to the lender to seize your asset, i.e., your car, for instance, if you do not pay the EMI on time. The hypothecation letter is part of the car registration papers. Once you have paid all your EMIs, you must make sure to change the owner’s name in the papers.
The loan amount you can avail depends on your age and income. The amount disbursed varies from one lender to another depending on your net monthly salary or annual income. Presently, the range is usually between 25-48 times of ‘net monthly income’ or 4-6 times of ‘yearly income’.
Lenders offer a certain percentage of the financing. Some banks even offer up to 100 per cent financing. The amount can be of the ‘ex-showroom’ price or the ‘on-road vehicle’ price.
Ex-showroom price is paid to buy a car from a dealer. When you pay other charges such as registration charges, insurance premium, road tax, etc., to get the car on the road, then it becomes the On-road price, which is the actual cost of the car that one pays to get the car keys in their hand.
While taking a loan for a pre-owned car, there are many costs like re-registration charges which are not covered.
Interest rate charged
The lenders charge an interest rate on car loans as Marginal Cost of Funds based Lending Rate plus an additional spread. The rate charged is generally fixed. This makes repayment easier without having to worry about the increase in the EMIs in future.
However, if you think the interest rates will be coming down in future then you can opt for the floating interest rate. Some lenders even offer discounts to women on the interest rate charged.
A lender levies many charges while accepting the loan application or on the early loan closure. Processing fees are charged when the application is processed. It varies from one bank to another and is in certain percentage range of the loan amount.
The lenders also charge some fees on early loan closure, known as ‘foreclosure charges’; it is charged on the outstanding loan amount. This charge varies from one bank to another.
Some lenders also offer what is called ‘part payment’. It means you can pay a part of the principal outstanding to reduce your liability. A bank charges certain percentage depending on the tenure left to accept the part payment facility. However, this may not be allowed in the initial tenure of the loan, say within six months.
Lenders offer a flexible repayment period generally stretching between few years. One can choose the repayment period as one’s convenience. Also a borrower can prepay the loan. However, there are some charges involved in such a case.
Most banks finance all small and medium-sized cars, sport utility vehicles and multi-utility vehicles. It is, however, a wise move to check the list of cars that can be financed by the lender for the maximum amount rendered with fewer charges involved.
Also, the car bought in an individual’s name can’t claim any depreciation as per the income-tax laws. There are no tax benefits on taking a car loan. The interest paid on the loan is the actual amount one spends to buy a car. Therefore, one must be careful of the cost while taking a loan.
It is important to note that your expenses including your loans should not exceed that of your budget. Also, it is much easier to apply for a car loan than applying for a house loan as the former does not require the presentation of collateral.