Tata Nano loan interest rates may be high

While details about where to book the Tata Nano are available, details about loans and interest rates are yet to be revealed.

The much-anticipated ultra cheap car, the Tata Nano, would be officially launched on March 23 in India.

The buzz in the market is that the loan interest rates for the Tata Nano are going to be on the higher side.

Reports say that Tata Motors is in negotiations with SBI to finance loan schemes for the Tata Nano, and the process in which the loans will be disbursed to customers, in cities, towns, and rural areas.

Business Standard has said that Tata Motors is working out a finance scheme for the Tata Nano, with SBI, under which the bank will finance 70 per cent of the price of the Nano at an interest rate of 14 to 14.75 per cent for a tenure of up to five years.

It is speculated that interest rates on Nano car loans offered by government banks are bound to be between 12 – 15%, while private banks may charge higher interest rates.

The estimated interest rates for the Tata Nano are steeper compared to interest rates charged for similar tenures. But, that can be attributed to the weaker financial profile of the average Tata Nano buyers, and the consequent perceived risk associated with the loans.

The general perception is that given the Rs 1-lakh price tag of the Tata Nano,  its buyers will come from lower-income groups, increasing the risk factor.

(This has to be proven, though. If you wanted to, you could always buy a used car from Maruti or Hyundai for Rs one lakh. Not just that, they would be established, reliable brands. The on-road price of the Nano will be Rs 1.35 lakh approx (varies by variant) so at that price, it was always perfectly possible to buy a car.)

In fact, Indian auto financiers have compared Tata Nano buyers to two-wheeler and used car buyers, who also fall into lower-income categories. In these two categories, interest rates charged on loans are higher (20-23%), in anticipation of repayment defaults, that are highest in the two-wheeler segment.

Tata Motors also has tie-ups with Indian Bank, Union Bank, and State Bank of Mysore, to finance the Tata Nano.

Some reports have said that Bank of India plans to charge an interest rate of 12% to 12.5% for the Nano pre-delivery. After delivery of the car, the interest rate will go down to 10-11% because the car would then be mortgaged to the bank.

The company has said that all details about loans and interest rates will be provided on Tata Nano’s commercial launch on March 23, 2009. “The company is making arrangements for the widest possible network to book the car, so that prospective customers can conveniently avail of booking facilities at their locations across the length and breadth of India,” a Tata spokesperson said.

The Tata Nano can be booked at Tata dealerships, Westside stores, and Croma stores. The application forms that will cost Rs 300 will be collected and transferred to SBI, where they will be processed.