Insuring your new car

Insurance amount: The amount of insurance is equal to the market value of the vehicle and not the original purchase price or book value of the vehicle.
Renewal: The insurance policy needs to be renewed before expiry of the policy period. Any delay in insurance renewal can deprive you of the insurance benefits and also attract a penalty while renewing. Remember, it is against the law to drive an uninsured car. Moreover, if the insurance policy isn’t renewed within the period of validity, the car will have to be brought to the insurance company office for inspection.
No-claim bonus: No-claim bonus (NCB) clause is basically applicable to holders of comprehensive insurance policy. The clause refers to the discount that a policy holder can receive on the amount of premium payable, if he/she has not lodged any claim during the year. The policy holder can claim a 20%, 35%, 50% and 65% discount in the premium in the first, second, third and fourth year of holding the policy. NCB cannot be claimed in the 5th year premium. The discount is based upon the claim that he has lodged with the company. Besides this, NCB is important when you are buying another new car because you can transfer this record (clean claim period) to your new vehicle. Let us work out some numbers on this. Say you have to pay Rs. 5000 as premium of your car. However, as you have a clean record, you would have to pay just Rs 1750, when you enjoy NCB @ 65%. Now, when you buy a new car which has a value higher than the current one, premium is undoubtedly higher. But you get to transfer the bonus percentage onto your new car. So, if on your new car, the premium that you have to pay is Rs 10,000, because of the NCB, you need to pay only Rs. 3500; that is, you save Rs 6500. But remember that the new car purchase has to be made within three years of sale of the old car.

Registering a new car at the RTO

Firstly, when you buy a new car, you have to register it with the Regional Transport Office (RTO). Remember that despite taking a loan from a bank, you are entirely responsible for the registration of the car.
Also, every car has its own Certificate of Registration (RC) book that tracks the history of the car. Moreover, as a car buyer, you need to ensure that all the legal forms should be filled in completely and submitted to the right authorities. Say, you live in Mumbai and bought a new car. You need to submit the relevant documents to the RTO under whose jurisdiction your address falls. If the new car is from another state, you will need to obtain a certificate of temporary registration from the RTO. In most places, this certificate is valid only for a very short period, after which a permanent registration number has to be obtained.
While driving the new car to the RTO for registration, take the following with you:
1. Application for new car registration or Form 20
2. Photocopy of the invoice, insurance policy, ration card or telephone bill as proof of address
3. Original Sale Certificate or Form No 23, Sales Tax Receipt, Octroi Receipt
4. Pollution Under Control Certificate from the manufacturer or Form No 22
5. Letter from the financier, in case you have taken a loan to purchase a car, addressed to the RTO asking them to endorse their lien on your car registration certificate book or Form No 34
6. Your PAN number.
7. Imprint of your car’s chassis number.

Repaying a car loan

One of the first things you need to look at while taking a car loan is the monthly installment, popularly known as the Equated monthly installment (EMI). While different banks would give you different quotes depending upon their rules and regulations, you must compare your monthly outflow for the same amount and for the same tenure. Remember that the effective interest rate is a function of the reducing balance method being used to calculate it. Reducing balance is the method of reducing the principal amount being repaid, from the outstanding loan amount. Every time you make a payment, the interest you pay is calculated on balance outstanding principal. Different banks can use different methods like:
Daily : In this method, the principal is reduced every day as if you were making repayment of the principal on a daily basis.
Monthly : In this method, the principal on which you pay interest reduces every month, that is, when you pay your EMI.
Quarterly : In this method, even though you keep on paying you EMI, the principal reduces only every three months.
Yearly : In this method, the principal is reduced finally, at the end of each year. This effectively implies that though you have paid back a part of the loan during the year, the principal outstanding gets reduced only at the end of the year. This simply means that the earlier the principal reduction is done, the lower the amount you will pay to the bank.
Nowadays, almost all banks offer the daily reducing method as it has more or less become a norm in the industry. However, it is better that one is aware of such things while going for a car loan.

Car loan paperwork

Before you drive off in that new car of yours, there are just a few papers that need to be signed. These include the power of attorney which allows the dealer to go to the RTO and register the vehicle for you and transfer of title if you are trading in a vehicle. Read each document carefully for errors. Once you sign on the dotted line, the deal is done. If something does not feel right, don’t sign. Do not feel pressured or obligated to sign just because of the amount of time invested by the salesperson.
Seven steps to negotiate the best car loan deal:
For most Indians, buying a car is a dream that comes second only to the dream of owning a house. This dream has become real for many Indians with the arrival of easy financing for car purchase. The decision to buy a car is, very often, prodded by the promise of easy financing that car dealers advertise. ? Do not compromise, “you can now own a Toyota Corolla for as little as Rs 10,000/ month”, says an advertisement, egging on all with monthly spare money of Rs 10,000 to own the dream Toyota. The mathematics of this foxes the prospective buyer. Is it real? You decide to check with the dealer. You find the offer is real, but the initial lump sum payment would be large. OK, you say to yourself. I’ll manage that. But what is the interest rate for the loan? The dealer tells you it is 11% and you wonder how come it is cheaper than a home loan? You proceed further and discover that this is really in lieu of the cash discount you could otherwise have got. You are no longer sure whether to believe him or not. You are not to blame. Car finance can become complex because of the financing deal between the car dealer and the bank. It will help you negotiate better if you follow the process below: 1) Finalise your decision on the car you want to buy. The interest rates vary from car to car; so, what is available on one car may not be available on another car. 2) Fix the amount of vehicle loan you need. Suppose the car costs Rs 8 lakh on the road and if you are ready to make a down payment of Rs 2 lakh, then freeze your loan requirements at Rs 6 lakh. Interest rates that you get also depend on the loan amount. 3) Ask around for preliminary quotes for the given loan amount for the given car. Freeze on the lowest EMIs that are offered. 4) Now, negotiate on the processing fees. Most times, the processing fees can be waived. 5) Then, start negotiating for cash discounts that can be adjusted against your down payment. The DSAs/dealers will offer to reduce the EMIs, but resist the temptation and insist on a cash discount. Also, the dealer/DSA will offer accessories in lieu of cash discount; again, resist and insist on cash discount. 6) Once you find that the cash discount limit has been reached, you can try for a small freebie on car accessories such as car mats, boot mats etc. 7) Remember to claim your no-claim bonus on the insurance policy for the new car if you have a claim-free record on your existing old car. Happy driving!