In today’s world, you can seek a loan for almost all major events in life such as home loan, wedding loan, education loan, personal loan and of course car loan as well. A loan can be sought either from a bank or non-banking finance companies. Though the broad criterions of all kinds of loan such as eligibility terms for approval of loan, rejection criterions for loan sanction, repayment capacity, CIBIL score, tenure, rate of interest, EMI, and the like remain quite constant, but there will be variations in terms of longevity of tenure, percentage of rate of interest etc. Here we will be focussing on the considerations that you must be aware while applying for used car loan online. The used car market has seen a tremendous growth curve over the past decade. The steep growth in this segment of the automobile industry is mainly attributed to the overhaul of the quality and services being provided by the dealers of used cars. The new-age dealers of pre-owned cars, especially the certified ones, ensure that their display of cars is top class with clearance in quality standards and road tests. They ensure that buyers of pre-owned cars receive clear documents of their purchase. The dealers also provide warranty, free services for either a year or a certain number of kilometres, and financial assistance to their customers. These factors make buyers of pre-owned cars confident about their purchase and it also becomes a good deal for them considering the low cost of the car. In addition, to these factors, banks and non-banking finance companies have also opened up to sanctioning loan for used cars. So, if you have made up your mind to purchase a pre-owned car, here are ten things you should know before taking used car loan:
1. Application for used car loan –
Like any other loan, you have a definite process to apply for a used car loan as well. It is important that you know about loan eligibility factors, required documents, loan types, the tenure of the loan, down payment, repayment process, factors for loan rejection, and the like in order to avoid rejection of your application or any unwanted surprises during the loan term.
2. Type of loans –
Generally, there are four different types of loan available for used cars. First is the secured loan where you will need a guarantor or collateral. Second is the unsecured loan which does not require a guarantor or collateral. Thirdly, pre-computed loans where the interest and principal payments are calculated in advance. And, fourthly, the simple interest loans where the interest rate is calculated based on the outstanding amount. So, get a clear understanding of each of these types before making your choice.
3. The rate of interest –
This factor becomes the deciding factor for the total amount of loan that has to be repaid. Thus, it is important to note that interest rate for used car loan could is slightly higher than the rate for a new car loan. In India, the interest rate for used car loan ranges from 13-20% per annum, and it varies across various lenders.
4. Tenure of loan –
In India, the tenure for a used car loan is five years among most lenders. However, this factor is greatly influenced by the age and condition of the used car.
5. Down payment –
Generally, banks and dealers prefer the customer to make a down payment of at least 10-20% of the total price of the car. Also, the more down payment you pay the less loan you have to take, and that actually works in your favour in terms of less interest rate and less number of EMIs.
6. Processing fee –
Banks or non-banking finance companies charge a certain amount of fee to process your applied loan. Though it is a one-time payment, yet it has its bearing on the total cost of the car. This fee could either be a certain percentage of the loan amount or a fixed amount derived by the bank or lender, and it varies from lender to lender.
7. Maximum loan amount –
The maximum amount of loan that can be sought for a pre-owned car is limited to 70-80% of the valuation amount. This means you will have to pay the remaining 20-30% as a down payment.
8. Credit score –
Credit score plays an important role in getting your loan approved. Hence, it is important that you maintain a good credit score.
9. Age of the car –
This is an important consideration by banks and non-banking finance companies when it comes to sanctioning your loan. Usually, lenders refer to finance cars that are less than five years old; hence, it is recommended that you purchase a used car that is less than five years old in order to have higher chances of getting your loan application approved.
10. Purchase from an authorized dealer –
It is always wise to buy a second-hand car from an authorized pre-owned car dealer. This increases your chances of getting the loan sanctioned.
In conclusion, it is indeed a great deal to own a Rs. 15-lakh car in Rs. 10-lakh. But, at the same time, it is important to keep the above-mentioned pointers in mind while seeking a used car loan for a smooth and hassle-free drive!