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

Festive Car Loans Carry Hidden Costs

Dealerships typically roll out festive discounts, exchange bonuses and special financing schemes around Diwali and Dhanteras, and many Indian households treat a vehicle purchase on these occasions as auspicious. A low EMI or an attractive showroom price, however, does not reflect the full cost of ownership. A car loan carries charges beyond principal and interest, and buyers are generally advised to compare the total cost of borrowing rather than decide on the basis of the monthly instalment or the advertised rate alone.

Five Charges To Examine

The first is the processing fee levied by a bank or non-banking financial company for approving and disbursing the loan. Lenders may charge a flat amount or a percentage of the loan value, and some also impose documentation, verification or administrative charges. Where festive campaigns advertise zero processing fees, buyers should confirm whether the waiver covers the entire loan or whether other administrative charges survive. It also matters whether the fee is refundable if the application is rejected or the purchase does not go through.

The second is the interest rate, which depends on credit score, income, repayment history, loan amount and tenure. A longer tenure lowers the EMI but raises the total interest outgo, so the annual percentage rate and total repayable amount are more useful comparisons than the EMI.

The third is insurance. Third-party motor cover is mandatory, while comprehensive cover also protects the vehicle itself. Premiums vary with model, engine capacity, location, insured declared value, claims history and add-ons such as zero depreciation, engine protection, roadside assistance and return to invoice cover. Buyers are not obliged to buy insurance through the dealer.

The fourth is the on-road price, which includes ex-showroom cost, road tax, registration charges, insurance and other expenses, along with the upfront down payment. Road tax varies by state and r…