Car loans are one of the best options for borrowing money in today’s world. It is a type of loan that offers you the opportunity to buy a new car or a used car at affordable rates. The interest rate of this loan is also lower than other types of loans. In fact, it is one of the most popular loan products because of its affordability and ease of use.
But, you must be aware of some terms and conditions of this loan. It is called as a finance charge. It is a charge that is added to your car loan. It is a mandatory fee that is charged by the bank. This charge is usually calculated on the basis of the total amount of your loan. But, it is different from bank to bank. Some banks may add the finance charge at the time of disbursement while others may do it at the time of receipt of the loan. But, it is not necessary that all banks will charge the same amount of finance charge.
Why is there a finance charge?
The main reason behind adding a finance charge is to protect the bank from losing money in case the customer defaults on the loan. The bank doesn’t want to lose money when it is investing in the loan. The finance charge is added to the loan to cover the risk that the customer might default on the loan.
What is the finance charge on car loans?
When you apply for a car loan, the lender will ask you about the amount that you want to borrow. After that, the lender will calculate the interest rate and the amount of the finance charge. The finance charge is usually calculated on the basis of the total amount of the loan. If the amount of the loan is Rs 10,000 then the finance charge may be Rs 200.
Some lenders may also charge a small amount of the finance charge at the time of disbursement. Some other lenders may charge the finance charge at the time of receipt of the loan.
How does the finance charge affect me?
The finance charge affects you in two ways. The first way is that it will add more money to your loan. It will increase the total amount of your loan by the amount of the finance charge. The second way is that it will make your monthly repayments higher. This will mean that you will have to pay more money each month. But, the amount of the finance charge will not exceed the principal amount of the loan.
What should I do if I want to know the finance charge on my loan?
If you are planning to apply for a car loan, then you should know about the finance charge. You can find out the finance charge on the website of the bank where you are applying for the loan. It is possible that the lender may charge the finance charge at the time of disbursement or receipt of the loan. You should be aware of the finance charge at the time of application. If you know about the finance charge, then you will be able to plan your repayment schedule accordingly.
Conclusion:
So, these were some important facts about the finance charge. I hope that you will be able to understand the concept of this charge better after reading this post. I also hope that you will find it helpful when it comes to applying for a car loan.