The festival season is at the doorstep and the banks and financial institutions are competing against each other to offer a better car loan.

The Government banks are offering loans at lower rates while the private lenders are dangling higher loan-to-value proposition. To illustrate, we have the Canara Bank, IDBI Bank and ICICI Bank which had revised their car loan interest rates in August.

Canara Bank is offering a new scheme similar to State Bank of India’s (SBI) fixed-cum-floating offer in the home and auto segments. The SBI is offering 8 per cent for the first year, 10 per cent for the next two years, while Canara Bank is charging 8.5 per cent in the first year, 9 per cent in second year and 10 per cent between third and fifth year. Seeing this, both the ICICI Bank and IDBI Bank have cut their rates.

While the rate of interest is the most attractive feature of a loan, other issues such as structure (hybrid or fixed-cum-floating), loan-to-value on offer, tenure or time period and dealers’ partners need to be considered as well. These are some of things to consider for a consumer before opting for a loan.

A car loan seeker should approach the bank for clarity on these. Some financial institutions give relaxation towards initial down-payment and one can even avail a 0.5 per cent discount as well.

A car loan seeker should look for the cheapest loan for different tenures. If the loan is for three years, SBI emerges as the best bet. The bank’s offer of a fixed rate for three years makes it an attractive proposition. The average yearly rate comes to 8.87 per cent – the lowest.

In terms of Equated Monthly Installments (EMIs), a loan of Rs 3 lakh for three years would lead to an EMI of Rs 9,400 in the first year and Rs 9,592 in the second and third year. However, a car buyer has to fork out 15 per cent of the total cost as SBI lends only up to 85 per cent of the car’s value (on road price) for new as well as second-hand cars.

For loans with tenure of three-seven years, Canara Bank has the best offer. For instance, a car loan of Rs 7 lakh for five years would mean that the average rate is 9.2 per cent a year.

The EMI will work out like this – Rs 14,362 for the first year, Rs 14,638 for the second year and Rs 14,712 from third to fifth year. The only drawback is that Canara Bank does not provide four-wheeler loans for tenures above six years. The bank funds 90 per cent of a new car’s ‘on-road’ price. For used cars, loans are given only up to 75 per cent of the car’s value. In comparison, ICICI Bank’s EMI for the same loan would come to Rs 16,379 at an average rate of 14.25 per cent.

While offers of public sector banks are quite impressive, the process could be time consuming. This is because they follow a centralised loan approval system that leads to delays in sanction and disbursal. Also, they are more stringent as far as the loan-to-value percentage goes.

If the loan seeker is unable to shell out the required 85-90 per cent, approaching private banks through direct selling agents (DSAs) or dealers will help. In fact, some DSAs claim that they can get you a 100 per cent loan on select models.

Like mutual fund distributors, both dealers and DSAs normally have partnerships with as many as four-five banks. This helps them get you a better loan-to-value deal or even rates, at times.