Hidden costs
That’s not all. Muzammil Habeeb, owner of Bengaluru-based second-hand car dealership Alpha Motor World, explained that lenders also charge a higher processing fee, plus a special evaluation fee, and some mandate the installation of a GPS tracking device to allow them to locate and seize the vehicle in case the borrower defaults. If a borrower cannot pay the inflated processing fee upfront, lenders often offer to capitalize it by adding it to the total loan principal. Over a 5-year loan tenure, a ₹10,000 device can cost you ₹15,000 or more in total payments due to compounding interest. In addition, he said that upon approval, the bank registers its legal claim (hypothecation) on the vehicle by making an entry on the vehicle’s Registration Certificate (RC), and lenders generally bundle these costs into upfront loan fees. While these costs apply to new car loans too, they vary more widely across lenders and borrowers on used car loans, largely due to risks associated with asset valuation.