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There are many factors that govern auto loans. Take this quiz to find out just what you know and must know about borrowing money for a new car.
1. What are generally loan tenure options for new cars?
a. One to five years
b. Five to ten years
c. Less than one year
The correct answer is a. The tenure of the loan could range from one to five years for new cars. For instance, HDFC Bank provides five repayment options of 12, 24, 36, 48 or 60 months all designed to suit their customers' requirement.
Also read:
Quiz: Test your home loan knowledge
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2. Is a personal guarantor must in case of car loan?
a. Yes
b. No
c. Can be required in case your credit profile doesn't meet the lender requirements.
The correct answer is c. No, a personal guarantor is not a must. However it can be applicable only during instances where your credit profile does not match the lender's requirements. Even then this can be taken care of by simply taking on a co-applicant.
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3. Is there a pre-payment penalty on auto loans by some banks?
a. No
b. Yes
c. Depends upon lender banks
The correct answer is c. Yes, some banks do charge pre-payment penalty. For instance, ICICI Bank charges pre-payment fee of 5% on the outstanding principal amount, service tax will be charged as applicable.
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4. What are stages involved while availing a car loan?
a. Application and processing
b. Documentation, sanctioning, disbursement
c. All of above
The correct answer is c. All above are standard processes while availing a car loan.
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5. How is the interest on auto loan calculated?
a. Fixed flat rates
b. Reducing balance rates
c. Either of a or b
The correct answer is c. Interest rates are quoted either as fixed flat rates or reducing balance rates. In the flat rate method of interest calculation, the outstanding loan amount is never reduced during the entire tenure of the loan even though you make payments monthly.
In the case of reducing balance interest rates the EMI is calculated on the basis of daily, monthly, quarterly or annual rests.
A 'rest' indicates the time frame in which the bank will recalculate the EMI based on the amount of loan paid back.
In the case of reducing balance interest rates the EMI is calculated on the basis of daily, monthly, quarterly or annual rests.
A 'rest' indicates the time frame in which the bank will recalculate the EMI based on the amount of loan paid back.
Taking an auto loan? Crack this quiz first!
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6. Is a 100% financing of car possible?
a. Yes. But subject to some term and conditions.
b. No
c. Yes, since all banks provide this option without any terms and conditions
The correct answer is a. It is possible but not all banks offer such an option. Those banks which offer 100% financing will do so subject to certain terms and conditions and reserved only for certain makes and models of cars. These aspects are based on the discretion of the bank. Mostly this is applicable only for new cars. At HDFC Bank you can borrow up to 90% of the invoice value. However, the minimum loan amount is Rs 50,000.
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7. Is it essential to have a bank account with the bank that offers you a loan?
a. Yes
b. No
c. Some banks make it mandatory
The correct answer is b. It is not required to have a bank account with the bank that provides you the car loan. However, it might have certain advantages like a faster processing time and benefits like a top-up loan of the original loan value provided upon request etc. in some cases.
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8. What is 'zero interest scheme' in the context of car loans?
a. Loan seeker pays back only the principal amount
b. Loan seeker pays back principal and certain processing fees
c. No such scheme applies to car loans
The correct answer is a. This is a scheme in which you are not charged any interest and you only pay back the principal amount.
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9. Can one change the tenure and amount of loan taken after the loan amount has been disbursed?
a. Yes
b. No
c. Only in some special cases
The correct answer is a. Yes you can change the tenure and amount of the loan. But this would imply that the interest rate and the amount of installment would change accordingly.
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10. Is 'credit profiling' significant while availing a 'car loan'?
a. No, it doesn't apply to car loans.
b. Yes, it is significant
c. Not significant at all
The correct answer is b. To banks, your credit profile is the most important factor they would consider before funding you. Your credit profile tells banks if you are able to and intend to pay back the loan.
Summarisation on auto loans:
Auto loans can be easily availed since almost all the banks provide such loans. However make sure you take the loan you can afford to pay back and don't 'default'. Frequent prolonged delays and dishonored cheques are deemed as defaults in repaying your loan. In such a case your lender bank can seize your car after serving you proper notice but without any coercion.
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