Not Getting Loan For 5+ Year Old Vehicles - Car Loan Blog - Tata Capital

Not getting a Used Car Loan for vehicles older than 5 years? Know why

Mar 06, 2017

If you take a walk down to a certified used car dealer, you will be surprised to see that many cars on sale are sparingly used and quite new (just a few years old). So, buying a used car doesn't always mean that you will be buying a shabby looking, rickety and rusty old car.

People these days are selling cars in perfectly good condition to purchase new ones. So such cars can actually be a good choice for those who don't want to spend a lot on buying a car.

Buying a used car is fine but buying a very old one might not be sensible. First, very old cars have high maintenance issues and are generally less reliable. Also, if you are planning to take a used car loan to purchase it, the age of the chosen car plays a crucial role in lender's decision to approve or reject your loan.

Generally, most lenders avoid giving loans for purchase of vehicles older than 5 years. Not only that, tenure of the loan is also considered along with the age of car for processing of loan application. As per loan experts, lenders use simple thumb rules - like 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 in case of older vehicles, as the depreciated 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.

This is a less discussed factor that often leads to rejection of many people's loan applications. So it is advisable that when you start the process of purchasing a used car, you only consider vehicles that are less than 5 years old. This will not only help you keep future maintenance costs under check but also help you in your loan application.