Checklist For Your Pre-owned Car Loan Application

Everyone wants to own and drive their dream car around but most people don’t have the budget to fulfil this ambition. However, if people are willing to look at options beyond the expensive brand-new cars, there are ways to own a nice vehicle. Wondering how you can do that? Let us guide you!

Consider the ever-expanding market of pre-owned cars, for example. Over the past decade, this market has grown so significantly that today it is giving major competition to the new car market in India. The reason lies in a pre-owned car’s affordability quotient. The moment a new car is sold and leaves the showroom, its market price goes down. Irrespective of the brand and model, depreciation of a new car is about 10%-20% in the first year itself whereas second-hand cars are already past the maximum depreciation stage. This means you need to pay less for the same car you have been dreaming to buy one day.

Another reason the second-hand market has grown is the quality of cars. If you think ‘used car’ means a car that’s in bad shape, you might be highly mistaken. The new age car owners prefer to upgrade their automotives every few years and thus, sell their brand new cars after using it only for a few months. Moreover, when reputed car dealers do a little touch-up, the used car returns to its former glory.

Despite the drop in cost, the price of the car can be around a few lakh rupees. When savings are little but buying a car is essential, you can opt for a used car loan, which several financial institutions companies are ready to provide. Because of the technology, the entire process of used car loan application and approval has become very quick and transparent.
 

Advantages of taking a Used Car Loan

 

1. Easy and customized Instalments

   In this type of loan, you can choose a repayment plan according to your budget. It’s important to note that EMIs can be reduced by paying a bigger down payment amount. Also, EMIs will be lower if the loan term is spread out over a longer tenure and will be steeper if you wish to pay them in a shorter duration of time.
    

2. Tenure of repayment

   Usually, lenders offer repayment tenures that ranges from one to five years, but now some lenders are willing to push it up to seven years. As mentioned above, tenure and EMIs are inter-related and so, the decision must be made according to one’s monthly repayment capacity.
    

3. Owning popular models at an affordable price

   It goes without saying that the biggest benefit of used-car loan is that you will be driving the same car you wished for sooner than planned. Simply the fact that car was pre-owned, reduces its price by 10-20% even if it looks nothing different from a brand-new vehicle. Also, go for popular models of car with age less than four-five years, as they will get you a better loan deal from lenders compared to offbeat models as there are hardly any takers for the latter.
    

4. Easy and simple documentation

   The documentation process is quite easy and simple and now mostly done online, so your  loan can be disbursed quickly.
    

5. Car as collateral

   In case of a car loan, the vehicle purchased itself becomes the collateral. So, you don’t have to put anything else on the line to get the loan approved.
    

Also Read: Getting The Best Interest Rate On A Used Car Loan-Everything You Need To Know
 

Some points to consider before taking a used car loan/pre-owned car loan

 

1. Check your credit score

   Maintaining a good credit score is really important for a loan application. You must check your score on any finance related website before approaching a lender. It will indicate that you are comfortably placed to repay the loan on time.  
    

2. Look for best loan terms

   You must check the loan eligibility, lender, interest rates, tenure, and repayment options. The loan amount depends on your age, income, and employment type. Lenders usually finance 80-90% of the car's market value. One should always opt for the loan which suits his requirements. 
    

3. Check the Hypothecation formalities

   When the loan is taken to buy a car, your car is hypothecated to the financial institution company or any other lender from where the loan has been taken. They have the right to seize the car if there is any delay in the payment of EMI. So, make sure all the hypothecation terms before availing the loan.
    

4. Choose the right lender

   Different lenders have their own loan charges and eligibility criteria. Before opting for anyone, a comparison should be done online to know if you meet their eligibility criteria with respect to income, employment and repaying capacity.
    

5. Plan your budget accordingly

   You must plan your budget according to your income. Remember that in case of loans, the valuation of the car done by the financial institution will be lower than what you are shelling out to buy it. The interest rate depends on many factors like the category of car, manufacturing year, the condition of the car etc. Keep around Rs 30,000-50,000 aside for miscellaneous charges like processing and transfer fees in addition to the one or two lakhs for the down payment. 
    

 

Things to check before buying a used car in India

Many borrowers just think about the basic requirements that the financial institution asks for at the time of loan application. However, they miss other important aspects associated with purchasing a used car that can affect your loan approval and interest rates. For your convenience, we have provided a buying second-hand car checklist in India as follows:
 

1. Car related documents

   Before buying a used car, you must check whether its various documents are in order. It's because each document has its own significance in terms of legality and loan approval. Some of these required documents are:

    

   • Registration certificate:

     A registration certificate (RC) serves as proof that the car belongs to the rightful owner. If the car you are buying lacks this document, there is high probability that the car was stolen and is now up for sale. Financial institutions won't accept your used car loan application if you are buying a car with no RC.
      

   • Insurance papers:

     According to the law, you cannot drive any sort of vehicle in India if it does not have basic insurance cover. Insurance assists financial institutions in determining the driving history of a vehicle. Your lender will be able to identify whether the vehicle you are purchasing has ever been in an accident. Cars with multiple major insurance claims in the past have a very limited probability of being approved for a loan.
      

   • Pollution Under Control (PUC) certificate:

     PUC certificate ensures that a car's emission levels are well within the government's prescribed limit. This certificate is essential for every car in India, whether it is driven by a petrol engine, diesel engine, or CNG. Cars that do not have this certificate are considered unsafe to drive on the road. Again, financial institutions won't approve a loan for cars that do not have a PUC certificate.
      

   • Service record book

     It is another important document that financial institutions examine to assess a vehicle's condition. It provides them with information on the types of repairs and replacements for which you have visited the car’s service centre. If the reason for such repairs is something that makes the lender think the car is nearing the end of its life cycle, your loan application for buying that used car won't be approved.
      

   • Other documents

     In addition to the above-listed papers, lenders will also ask for the road tax receipt and original sales invoice for the car.
      

2. Test drive

   Always take a vehicle for a test drive before finalising on purchasing it. Make sure you cover a good distance instead of driving for one to two kilometres only. Test drives are the best way to determine the car's health. While taking a test drive, carefully note the following vital things as well:
    
   • Check for any unusual vibrations coming from the engine.
   • Check to see if the vehicle overheats after a short trip.
   • Learn about the car’s mileage.
   • Inspect the air conditioning unit and the infotainment system.
    
   Avoid buying the used car if you notice any major flaws while driving. However, if the flaw is minor, you can use it as a bargaining point to reduce the car’s price.
    

3. Physical inspection

   There are some concerns that you may not be able to identify in a single test drive trip. For example, if there is a problem with the battery, a slight leak in the car’s systems, or fault in other electrical components, these are difficult to identify in a test drive of 10 kilometres. You will need to seek the advice of a professional mechanic for identifying such issues.
    
   Let's learn about the next important checklist to follow when applying for a second-hand car loan: the eligibility conditions and loan documents.
    

Also Read: Getting The Best Interest Rate On A Used Car Loan-Everything You Need To Know
 

Eligibility and Document checklist for your loan application

 

Eligibility

• You must prove that you are an Indian resident above 18 years of age with regular income.
• If you are a salaried employee, you must have spent a minimum of 6 months at your current job.
• If you are a self-employed individual, then you should have your company registered and it should be at least 1 year old.
• A good credit history is another must.

 
Basically, you have to meet the age, professional background and income criteria of the lenders as they prefer applicants who have a lower debt-to-income ratio. 
 

What are the documents required for second hand car purchase?

• Keep your Aadhaar, PAN card, address proof, age proof, car valuation report, registration and insurance papers of the cars, etc. ready.
• If you are a salaried person, you need to show your salary slips and bank statements.
• If you have your own business, you need to show registration papers, balance sheets of the company along with KYC details of partners and board members.
• Keep passport size photographs handy.

 
A used car can be afforded by most Indians these days. The reduced price, which can be paid in easy instalments, and the comfort of a car, make it a win-win situation for those who are getting tired of travelling in crowded public transport and can’t wait to take out their own four-wheeler.
 
Disclaimer: This post was first published on 24th August 2018 and has been updated for the latest information, freshness, and accuracy.