Buying a car this Diwali? From processing fees to insurance, don't ignore these 5 charges before applying for a car loan

Buying a car during Diwali and on Dhanteras day is considered an auspicious investment by many Indian households, with dealerships often rolling out festive discounts, exchange bonuses and special financing offers to attract customers. However, while an attractive price tag or a low equated monthly instalment (EMI) may make a deal look affordable, the actual cost of owning a car can be considerably higher.

For prospective buyers planning to purchase a vehicle this Dhanteras, it is important to look beyond the showroom price and calculate the total financial commitment before signing a car loan agreement.

A car loan involves several expenses apart from the principal and interest payments. These include processing charges, insurance, registration, documentation costs and additional fees that may increase the initial financial burden.

Financial experts generally advise buyers to compare the total borrowing cost rather than choosing a loan solely on the basis of the EMI or advertised interest rate.

Here are five important costs to check before taking a car loan this Dhanteras.

One of the first expenses to check is the processing fee charged by the bank or financial institution for approving and disbursing the car loan.

Lenders may charge a fixed amount or a percentage of the loan value as processing fees. Some may also levy documentation, verification or administrative charges.

Festive offers sometimes advertise zero-processing-fee loans. However, buyers should check whether the waiver applies to the entire loan or whether other administrative charges remain payable.

It is also important to ask whether the processing fee is refundable if the loan application is rejected or the buyer decides not to proceed with the purchase.

Compare these charges across lenders before finalising the financing arrangement, as even seemingly small fees can add to the overall cost of borrowing.

The interest rate is among the most important factors determining the total cost of a car loan.

Banks and non-banking financial companies (NBFCs) offer different interest rates depending on the borrower's credit score, income, repayment history, loan amount and tenure.

A lower EMI does not necessarily mean a cheaper loan. Lenders may offer smaller monthly instalments by extending the repayment period, which can increase the total interest paid over the loan's lifetime.

While the seven-year loan reduces the monthly repayment burden, the borrower ends up paying substantially more in total interest than with a shorter tenure.

Buyers should therefore compare the annual percentage rate (APR), where available, and the total amount repayable rather than focusing only on the monthly EMI.

Insurance is another significant expense that buyers should factor into their car purchase budget.

While third-party motor insurance is mandatory under Indian law, buyers also need to consider the cost of comprehensive insurance, which covers damage to their own vehicle in addition to third-party liabilities.

The premium can vary depending on the car's model, engine capacity, location, insured declared value (IDV), claims history and selected add-on covers.

Dealerships may offer insurance packages along with the vehicle. However, buyers are not required to purchase insurance exclusively through the dealer.

It is advisable to compare premiums from different insurers before making a decision. Buyers should also examine the coverage offered rather than selecting a policy solely because it is cheaper.

Some common add-ons include:

- Zero depreciation cover: Reduces depreciation deductions on eligible parts during claims.

- Engine protection: Covers specified engine-related damage, subject to policy conditions.

- Roadside assistance: Provides support in case of breakdowns and emergencies.

- Return to invoice cover: Helps bridge the difference between the insured value and the original invoice value in specified total-loss or theft situations.

While these covers can increase the insurance premium, they may offer additional financial protection depending on the vehicle and its usage.

The ex-showroom price advertised by a dealership is not the final amount a buyer pays to drive a car home.

The on-road price generally includes the ex-showroom cost, road tax, registration charges, insurance and other applicable expenses.

Buyers should also account for the down payment, which is the portion of the vehicle's price paid upfront rather than financed through the loan.

A larger down payment reduces the loan principal and, consequently, the interest burden. However, buyers should avoid exhausting their savings merely to reduce the loan amount.

It is equally important to check the following charges before making the payment:

- Road tax: Varies across states and depends on factors such as the vehicle's price and category.

- Registration charges: Fees payable for registering the vehicle with the Regional Transport Office (RTO).

- FASTag: Applicable charges for purchasing and activating the electronic toll collection tag.

- Extended warranty: An optional expense that may extend coverage beyond the manufacturer's standard warranty.

- Accessories: Additional costs for items such as seat covers, floor mats, infotainment systems and other dealer-fitted equipment.

Ask the dealership for a detailed on-road price quotation and verify each item rather than accepting a consolidated figure.

The final cost buyers should examine is the set of conditions governing early repayment and loan closure.

Many borrowers plan to repay their car loans ahead of schedule if their income increases, they receive a bonus or they have surplus savings.

However, certain loan agreements may contain conditions relating to part-prepayment, foreclosure or early closure.

Before signing the agreement, check whether the lender charges any fees for making additional payments or closing the loan before the scheduled tenure.

Also examine whether the loan carries a fixed or floating interest rate, how the lender calculates interest and whether there are any restrictions on partial repayments.

Borrowers should also check:

- Whether there are charges for delayed EMI payments.

- Whether any cheque or electronic payment bounce charges apply.

- Whether the lender offers flexible repayment options.

- Whether there are restrictions on transferring the loan to another lender.

- Whether the loan agreement includes compulsory bundled products or additional services.

Understanding these conditions can help buyers avoid unexpected expenses during the repayment period.

Dhanteras offers and attractive financing schemes can make buying a new car appealing. However, buyers should remember that a vehicle is a long-term financial commitment involving expenses beyond the loan EMI.

Apart from the five costs mentioned above, prospective owners should budget for fuel, servicing, maintenance, parking, tolls and depreciation.

Before finalising the purchase, compare loan offers from multiple banks and NBFCs, calculate the total repayment amount and ensure that the EMI comfortably fits within your monthly budget.

The objective should not simply be to secure the lowest EMI or the biggest festive discount, but to buy a car without putting unnecessary pressure on household finances.

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