SBI cuts first-year rate on auto loans to 10%

The State Bank of India (SBI), the country’s largest bank, is doing everything it can to revive economic demand. After offering concessions on home loans, the bank has announced car loans at 10% rate of interest for the first year for loans approved until May 31.

Only new buyers are eligible.

Like the home loan scheme, these car loans will also be reset after one year to the prevailing card rate at SBI. The new loans are lower than the 11.5-12% rate offered under the bank’s existing regular auto finance scheme.

The equated monthly instalment in the first year will, however, be calculated at the existing interest rate of 11.5%. This means a borrower will be repaying a greater amount of the principal amount in the first year since the actual rate of interest will be 10%.

P Nandkumaran, SBI’s chief general manager, auto loans, said the tenures would reduce because customers would repay a higher principal component in the first year. A quick calculation by DNA showed that the tenure for a seven-year loan will come down by two months to around 82 months.

“This scheme is only for people buying new cars. Neither our old customers nor car loan customers from other banks can avail of this,” Nandkumaran said. SBI, which finances 10,000 cars a month, wants to finance double this number through the new scheme.

“There is no special request from manufacturers or demand from them,” Nandkumaran said, “but car sales have shown a pick-up in January. We hope to give this market a push (through this scheme).”