When you are planning to purchase a car, you have several considerations, such as finding the best deal, choosing the perfect model, and getting the ideal financial assistance. These become important also when you are planning to buy a used car.
But, with the emergence of several organized companies in the market for used cars, the process is becoming more streamlined. So, consider the following aspects when seeking a loan for a used or new car:
In the current used car loan market, there is no need to shell out the complete payment at one go. Nowadays, you can get a used car financed like you just would get a loan for a brand-new car.
Several financial institutions and banks now provide used car loans. These can be procured via listed banks, NBFCs or directly from an organized seller of used cars.
You must find a used car that fits your budget. You must first determine a budget and then search for the best options available. One must use much patience to purchase a pre-owned vehicle.
If you wait for a long time, you might get a good deal on your dream car, which might have been unaffordable within your budget. All you need to do is to do a physical check of the used car and make the necessary repairs.
Get The Right Valuation
After zeroing in a used car that you fancy, try and get an authentic valuation for it. Based on factors like kilometers driven, model, make, etc., find the right valuation of the car, which will be crucial while applying for a loan for a used car.
Though organized companies will be ready with a used car valuation, you can find valuation calculators at certain online sites. Request the seller of the car for its insurance records, using which you can find whether the vehicle was subject to any previous claims.
Select Right Finance Option
After determining the car’s value, the next task is to choose the finance options that suit you best. Note that all lenders will demand a down payment, just like in the case of a new car.
In some rare cases, a bank may provide you with 100% financing, but the general trend is that the lender usually offers 80 to 85% of the cost of the car as a loan.
At times, this may go as low as 60%. You will have to pay the remaining amount in the form of a down payment.
The Issue of Rate of Interest
ROI is the next issue that counts. Various financial institutions provide various interest rates on car loans, and this depends on factors like customer profile, credit history, vehicle type, and more.
The current rates of interest on used cars begin at 11% and can touch 18% per annum, which is a bit higher than ROI on new cars, which begin at around 7.5%. Some banks offer floating ROI, while others provide fixed ROI.
Know Your Credit Score
Thankfully, taking a used car loan is not like a mortgage. You can get a car loan even if you have a poor credit history.
The only catch is that you will be charged a higher rate of interest. Low-interest rates are applicable only for those with a CIBIL score of over 700.
Tenure of Loan
This is the next factor to consider. Usually, the tenure of a loan of a used car is much less (3 to 4 years) than a new car (5 to 7 years). The main reason is that the loan amount is lower in the case of used cars. At times, the price of a used car may be 50% less than that of a new car.
Issue of EMI
EMI (Equated Monthly Installment) is the amount you have to pay the lender every month. It depends on 3 main factors like tenure of loan, rate of interest, and amount of loan.
Since ROI on a used car is higher than that on a new car, the best thing to do is to pay off the loan as fast as possible by selecting a shorter tenure. This helps reduce the total burden of interest. You must also find a lender who does not charge a fee for early repayment.