You can purchase a pre-loved car instead of spending lakhs on a brand-new vehicle. Take advantage of the depreciating value and save money with great used car financing options. Here’s everything you should know about this loan.
Almost every individual thinks of owning a car at some point. But often, the lack of funds stands in the way of fulfilling that dream. So, the alternative? Pre-owned car. For many, a pre-loved car fits the budget much better. While for a newbie mastering the art of driving and maneuvering, the second-hand car seems much more favorable than bumping your brand-new vehicle.
However, although much lesser than a new car, used cars come with a hefty price tag. So, many rely on used car loans to buy second-hand vehicles. This loan is helping customers fulfill their aspirations of being car owners. The best part is that you can get this loan with minimum documentation. With improved road conditions increasing the car’s lifespan, parts made of the latest technology, and flexible loan repayment schemes offered by financial institutions, India’s used car loan industry has a bright future.
However, it has its share of disadvantages too. Hence, before you get too excited, there are a few things you should get to know before getting a used car loan.
1. Eligibility Criteria
Like every other loan, you must fulfill some basic criteria to qualify for a used car loan. These eligibility criteria are:
- The candidate must be between the ages of 21 and 65.
- Salaried individuals must earn at least Rs. 20,000 each month.
- Self-employed individuals should make at least Rs. 2 lakh per year.
- Salaried individuals must have at least one year of continuous work history.
- Self-employed persons must have a three-year-old solid business.
2. Limited Loan Amount
Car loans have become highly affordable owing to 90% of the car cost available as loan amount, flexible repayment terms, longer tenure, and warranty from the manufacturer. However, you might encounter many surprises regarding used car loans.
Although time is changing, NBFCs and banks often hesitate to offer a massive amount of money as a loan for used cars. The limited loan amount is one of them. In most cases, you may get 80% of the car amount as the loan amount. So, be prepared to pay a hefty downpayment.
3. High Loan Interest
For used cars, the loan interest rate commonly shocks almost every buyer. While for new cars, interest ranges between 7-15%, used car interest rates start from 9% and can go up to 18%!
The interest rate is decided based on the car’s age and the number of reselling. Financial institutions commonly offer used car loans against cars less than eight years old, and they should not be resold more than three times.
4. Lesser Loan Tenure
The loan tenure for all pre-loved cars is up to 5 years. Whereas for a new vehicle, many lenders provide loan terms of up to 7 years.
5. Check For Hypothecation
Before you buy a used car with a loan, make sure the car’s registration is free of hypothecation to any bank or lending company. Hypothecation means either the vehicle is bought on loan and still not closed, or the existing owner has put it as collateral for a loan. When you buy a used car with a loan, any hypothecation is removed from the registration certificate, and you get a new one for yourself.
6. Check All Documents
Ensure that all necessary documents, such as insurance and registration certificates, are in order. Don’t forget to check the car’s engine and chassis numbers and ensure they match the numbers mentioned on the registration certificate. Also, you must ensure whether the car has been in an accident or has any servicing issues.
With the number of financing options opening up, it is becoming easier for people to fulfill their dreams of owning a used car or a brand-new variant. However, it is important to be responsible for your credit. You should borrow only what you can repay and pay your dues regularly without fail.