Wednesday, November 26, 2008

Pvt Banks increased margin money on four wheeler

For many of us buying a first car is always has a great emotional value. The interest rates have hiked so much that it has become difficult to buy a car but this is just one side of the story. If we see the other side which is adding up to the high cost of the four wheeler is the margin money which needs to be brought in upfront. Private sector banks without announcing have hiked the margin requirement by 10 percentage points in the past few weeks.

According to few dealers hike in margin money has made it difficult to get a car loan through. For a compact car (B Segment), lenders are demanding 10% to 15% as margin money while earlier it was only 5% or so. For a mid sized sedan (C-Segment car), the margin money requirement has been hiked to 20% from 10% and for a utility vehicle 25% is being demanded from the earlier 15%.

However the commercial banks are lending up to 85% of on road price (dealer price plus road tax and insurance). "The problem here is paper work consumes a week to 10 days," dealers said.

Thus this means a car buyer has to shell out Rs 60,000 upfront for a compact car as against Rs 20,000 earlier and increases correspondingly for bigger cars. Up till now car financiers used to finance up to 100% of on road price of car.

"This is not all. In most cases, car financiers have brought in tighter disbursal norms, making a purchase a Herculean task. I know of a case in Coimbatore, where a buyer was asked to show property in his name to avail of a loan for a small car. And more so, after all paper work, the lender disbursed only 85% of the car value," sources said. But a section of market thinks that rising interest rates in fact don't hurt sales that much. They say that a 50 basis points or half per cent increase on a one lakh rupee car loan for a time of three years will translate into a monthly of a mere Rs 36.

"For a first time buyer, there is a lot of emotional accomplishment of owning a car, therefore he will try and stretch himself. But, where he is getting stumped now is on margin payments," an official with private bank said. "Car financiers are hiking interest rates and increasing margin payments which are affecting the already damp sentiment. We hope to see drop in domestic sales, because of this situation," Arvind Saxena, senior vice-president, marketing, Hyundai, said.

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