The Impact of Inflation on Vehicle Loan Interest Rates: What Borrowers Need to Know
For most households in India, buying a car is a huge financial outlay that likely requires
borrowing or using external finance. Moreover, as inflation continues to climb in India,
borrowers will face an increasing cost of borrowing. If you have recently searched a vehicle
loan interest rates, you may have noticed rates are higher than they were a year ago—and
inflation has been one of the main reasons.
In this article, we will explain how the continual rise in inflation affects auto loans, why
vehicle loan interest rates are on the rise, and how borrowers can better plan in these variables.
What Is Inflation: A Quick Refresher
You have noticed inflation, and if you haven’t…consider this a wakeup call. Inflation is
described as a persistent increase in the prices of goods and services over time, and you
may witness it at gas stations, in vegetable prices, or within the cost of buying a new car. To
state it plainly, a rupee buys significantly less today than it did a year ago.
When inflation is high in India, the Reserve Bank of India (RBI) may influence its monetary
policy – including the repo rate. When high inflation is present, RBI usually raises the repo
rate to reduce liquidity in the system. While NBFCs like Kogta Financial are relatively
insulated from the direct impact of the RBI clientele or decision making process, the indirect
impact means a tighter and more expensive borrowing environment.
How Inflation Influences Vehicle Loan Interest Rates
Rising inflation means rising borrowing costs. Here is an example of how it can affect car
buyers:
Kogta Financial – Managing Inflation Risk
At Kogta, we care about good value. In an inflationary environment, money lent today will
have less purchasing power tomorrow. In order to protect the company and the borrowers’
needs, interest rates may slightly increase in response to a rise in cost of funds, while still
keeping affordability in mind.
RBI Policy Sets the Tone
While the repo rate does not affect NBFCs, it does set a standard for banks and financial
institutions to follow. An increase in repo rates means an increase in capital costs for all
lenders, which, in turn, will also increase the interest rates of private lenders. NBFCs like
Kogta follow these macroeconomic indicators in order to inform decision-making and stay in
line with customer-friendly products.
Borrower Risk Perception
In an inflationary period, household income is stretched from rising essential and lower
disposable spending. Repayment ability can be impacted. A borrower’s income and
expenses are thoroughly assessed at Kogta for all loans but those evaluations are even
more rigorously evaluated in a time of uncertainty.
Read More: Bank Rate vs Repo Rate: How They Affect Loans, EMIs, and Savings
What Borrowers Will Feel in Their Pockets
While rising interest rates look like minor changes, the reality is quite the opposite when it
comes to how much you pay monthly and over time.
Monthly Payments Increase
For example let’s say that you’re financing a car that costs ₹ 10,00,000 for 5 years. A ₹
10,00,000 car and an interest rate of 9% would produce about an EMI of ₹ 20,760. If interest
rates go to 11%, that same ₹ 10,00,000 car would increase your EMI to ₹ 21,740. From a
rate change of just 2%, that is an additional ₹ 12,000 extra in a single year, and a whopping
₹ 60,000 over the life of the loan.
Total Interest Paid Increases
When rates go up, a lot of the EMI is made up of interest paid in the earlier part of the loan,
thus should the interest rate change, you’ll be paying interest first and longer and thus the
total paid at the end of the loan repayment timeframe will be greater.
Shorter Tenures Become Less Attractive
Short-tenure loans are very attractive at lower interest rates, but in inflationary times, the
EMIs become for some borrowers less appealing. As a result, the same borrower can
choose a longer tenure to lower the EMI, and pay back more interest if rates don’t change or
increase.
Tips for Borrowers in a High-Inflation Environment
Just because inflation is on the rise, doesn’t mean you have to put off that car purchase. Just
plan well, and here’s how:
Monitor Your Credit Score
Your credit score will determine how much you will pay for loan interest. Here at Kogta
Financial, we reward those with higher credit scores with better terms. You can improve your
credit score by paying off credit installments, paying bills on time, and keeping a reasonable
utilization of credit.
Compare Loans Within Proven Institutions
Do not waste time seeking the “lowest rates”, from unproven sources. Do your comparison
within trusted NBFC institutions like Kogta Financial. The comparison loan process provided
by Kogta Financial is focused on transparency, low processing fees, fast disbursals so that
you won’t have hidden costs associated with “too good to be true “offers.
Get Pre-Approved with Kogta
Having a pre-approved vehicle loan helps you to know your budget and provides you with a
“locked” interest rate for a short period of time. Additionally, it allows you to negotiate better
when purchasing a car.
Pay a Higher Down Payment
The more that you pay up front, the less burden you will have on the loan. This reduces your
repayments and could increase your chances of securing better terms with Kogta. This is
especially useful when borrowing in a high interest market.
Don’t Get Overextended with your Budget
Low-rate automobile loans with appealing cars can tempt you to spend more than you
thought appropriate. If your EMI takes such a toll on your monthly income that you are
financially pinched, you’ve likely overspent. Select an EMI that fits well within your current life
style and consideration of your future goals.
Why Adding a Co-Applicant to Your Vehicle Loan Makes Sense
Are you having trouble getting approved for a loan or finding an affordable EMI? You may
want to consider applying for a joint loan with a co-borrower.
At Kogta Financial, we encourage applicants to include reliable members of their family to be
a co-applicant if they are eligible; this can be a spouse, sibling, or parent.
Here is how applying with another person helps:
● Dual incomes will increase your vehicle loan eligibility
● If your co-applicant has a good credit score, it could improve your loan rate
● If your co-applicant has a high credit score, it will help lessen your portion of the EMI
Whether you are getting your first vehicle or upgrading, if you wish to ease financing and
affordability, you could apply for a loan with a co-applicant.
Read More: Commercial Vehicle Loan @ Attractive Rates
Final Thoughts
Inflation affects more than just the price of onions and fuel—it also impacts your ability to
finance a car affordably. However, understanding how this system works means you are in
the driver’s seat.
At Kogta Financial India Ltd., we support and empower our customers with information and
options so we make the most responsible borrowing choices. We have affordable vehicle loan
interest rates, fast and easy documentation, and response times—built around today’s car
buyer in India.
When the markets have uncertainty, you shouldn’t have to worry about your financial
planning. Choose a loan partner that puts you first. Kogta Financial – Freedom To Grow.
