4 Important Used Car Loan Questions - Car Loan Blog - Tata Capital

Answer to 4 Important Questions you had about Used Car loans

Mar 02, 2017

Buying a used car can make a lot of sense for people who don't want to spend a lot of money in buying a vehicle. Many used cars these days are in perfectly good condition and can cost several lacs less than new ones. And few lacs are not a small amount.

So in this article, we try to answer 4 most common queries that people have about availing used car loans:

1 - How old used cars can be financed?

Most lenders avoid giving loans for purchase of vehicles older than 5 years. Tenure of the loan is also considered along with the age of car. So for example the maximum tenure of the loan when added to the age of the car, should not exceed 7 or 8 years. The reason for this is that the risk for lenders increases. Older vehicles have increased depreciation and the value of used vehicles is not enough to act as a security (collateral) for the loan. So lenders prefer not lending for very old cars

2 - Can 100% of cost of car be taken as loan?

No. The borrower needs to bring in atleast 10% of the cost of car as downpayment. Only the remaining 90% of the cost will be financed. But depending on the age of the car, income and debt servicing capability of the borrower, this amount can be even lesser than 90%.

3 - Are interest rate of used and new car loans same?

No. Used car loans are costlier than new cars loans by 3 to 5%. When a lender gives a used car loan with the old car as collateral, the lender is taking an already-depreciated asset as collateral. So in case of default, the lender will in any case get much lesser value if it comes to auctioning off the car. Hence the lender should be compensated for taking this additional risk.

4 - Does purchasing the car from a certified used car seller helps me get a loan?

It can. Most sellers have associations with lenders/banks that help in quicker processing of loan application. Since the sellers have already carried out all quality checks, lenders are assured of the quality of asset (used car), which will also act as the collateral for the loan.