Nivedita MookerjiAugust 12: Don't just get carried away by the flashy publicity of banks and companies while buying a new car on loan. Go around and do a bit of cost survey before you actually select a financier. At the same time, don't ignore the other realities such as time and procedures.

In the present market scenario, nationalised banks emerge winners in terms of financing cost or the rate of interest on loans. Another thing which goes in favour of the Indian banks is that they do not discriminate between car brands, unlike the foreign banks. Whether it is Citibank or Bank of America, the first question you are going to come across is ``which car''.

Accordingly, the bank will tell you the rate of interest applicable. For instance, Bank of America has a special promotional scheme for Zen. No processing fee, and the rate of interest has been kept at only 19.5 per cent on a reducing balance, says a BoA official in the car loan division.

But if Indian banks pick up points on low interest rates and uniformity in terms of car brands, foreign banks score many times over for saving a lot of your precious time. And you can take a pick between the two, depending on your priority at the moment.

So before we venture into a comparative study, let us choose the car for convenience. Take, for example, Maruti 800. First, the rate of interest. The State Bank of India is offering car loan at 17.75 per cent, Canara Bank also at 17.75 per cent, Bank of America at 20.5 per cent and Citibank at 22.75 per cent. The interest is to be calculated on a reducing balance, and the payments are to be divided into equated monthly instalments (EMI).

Loan processing charges next. Again, our model is Maruti 800. The State Bank of India charges Rs 1,000, Canara Bank in the range of Rs 250 to Rs 500, Bank of America Rs 3,500 and Citibank also Rs 3,500, say officials.

Now to the most important factor -- loan amount. SBI goes up to 80 per cent of the cost, Canara Bank lends up to Rs 5 lakh but keeps a margin of 25 per cent of the cost - so, in effect, it lends up to 75 per cent of the cost, Bank of America stretches the maximum to 90 per cent of the car cost and Citibank to 85 per cent of the cost.

The loan duration is no less important. But you can manipulate it at the time of striking the deal, according to your paying abilities. SBI, Canara Bank and Bank of America make provision for a repayment duration of three to five years each, whereas Citibank has a wider span from one to five years, according to officials in these banks.

Moving from the loan facts to the eligibility conditions, there are even more variations between banks. Foreign banks generally operate through their agents. For instance, Allianz does all the paperwork for Bank of America.

Also, most of the better known car dealers have tie-ups with foreign banks to finance loans. Dealers such as Competent Motors, Allied Motors or Bagga Link are quite likely to have finance agents hovering around for your convenience. And if you don't mind paying that much more, these agents will serve you well, but stay alert while signing the papers.

Foreign banks just want to know whether your earnings are enough to match your EMI. For that, your pay slips for three months running are enough. They will also ask for proof of residence and three passport-size photographs.Indian banks, however, do not just stop at that. A guarantor is a must, officials say in both SBI and Canara Bank. And preferably, the guarantor should be an account holder in that bank so that verifications are easy to carry out. Also, it is ideal if both the borrower and the guarantor have filed income-tax returns. And SBI also insists that the guarantor should own a house. It goes without saying that the relevant documents have to be shown to the lending bank at the time of loan processing.

The Indian banks also ask for an income proof of the borrower in the form of a letter from the place of employment, so just a pay slip won't do. And then you have to give the bank two notary bond papers on which the loan deal will be prepared. Also remember to get the invoice from the car company, so that the bank can issue a cheque without any delay. Once these formalities are in place, it takes about three days to process the loan. Quick enough, it seems. But only if the bank manager of that branch has taken pains to explain the complete procedure, without leaving out any relevant details, and if you have been patient enough to listen to him carefully.

For some more comparison, Indian banks generally prefer standing instructions from the borrower for the purpose of loan repayment, whereas foreign banks take all the cheques (with dates according to the EMI deal) in advance.

Also, when it is coming from a foreign bank, insurance is part of the package. But nationalised banks give you the choice to take an insurance later from any agent you like.

On the whole, if you are lucky and alert, you can get a comparatively cheaper loan from an Indian bank without much running around. And if you want to strike the loan deal at your desk and willing to pay that much extra, foreign banks are just a phone call away.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.