Interest Rate Model
Loan Assets created by Volkswagen Finance Private Limited (VWFPL) shall be priced primarily based on the cost of borrowings (Cost of Funds) and risk associated (in wholesale lending) with the quality of the Counter party and their possibility of default. The Cost of funds represented by the borrowing rate of VWFPL varies according to market conditions and thus, the pricing of new loans is impacted by any change in the cost of funds.
In addition to the Cost of funds (as mentioned above), VWFPL considers cost of capital, credit risk premium associated with particular borrowers or pools of borrowers , administrative costs and profit margin while deciding the pricing, besides the current level of interest in the market for similar lending activity. The borrowing rate for VWFPL is dependent on the maturity period for which the funds are borrowed. Similarly the loan assets are priced based on the borrowing rate corresponding to the maturity or tenure for which the asset is created. In case of floating rate loan assets, the pricing is based on cost of funds corresponding to the reset period or similar such parameters.
VWFPL will mention in the loan sanction letter, the rate of interest and the approach for gradation of risks including the rationale for charging different rate of interest to different categories of borrowers determined on the basis of various viz., age, gender, source of income i.e. salary or profession, location, political exposure, details of any existing loan and previous track record with other lenders (if available), etc.
The Standard rate of VWFPL for new cars is 9 to 10% p.a and for used cars is 13 to 14%. p.a (Standard rates are subject to change from time to time).
Penal Interest / Late Payment Charges
As a deterrent against intentional delinquency and to encourage timely and prompt repayment of instalments, the loan agreement provides for penal interest. However, in many cases, such delayed interest is reduced basis the merit of the case. In deserving cases, such interest is settled at much lower rates or waived off as per the discretion of the Management
Processing / Documentation And Other Charges
All processing / documentation and other charges recovered are expressly stated in the Loan Agreement. They vary based on the asset financed, the exposure limit, expenses incurred in the geographical location, customer segment and generally represent the cost incurred in rendering services to the customers.