Things to Consider Before Getting a Pre-Owned Car Loan

Owning a car is considered a milestone in a country like India. We have historically been medium to lower income family units and in this environment, buying a car is an important event in anyone's life. High population in the country, with an approximate 66% of people in the middle-income class and a large youth population has opened up attractive opportunities and increased demand for the car finance of new and pre-owned cars. Used car finance in India is expected to grow from below $2 billion now, to over $10 billion of annual lending by 2021.

Some NBFCs/ Financial institutions etc., disburse pre-owned car loans only for passenger cars while few fund for commercial vehicles as well.

If you are thinking of taking a pre-owned car loan, here are a few things you must consider.

1. Overall Budget

You can easily get excited about owning a car at a fraction of a price of what it actually costs, but it is important to figure out the costs associated with buying a new or a pre-owned car. You may have other EMIs pending, or your ability to make a substantial down payment. If you make a small down payment, your interest rate and EMI spread will also be higher, resulting in tight budgets later on. Hence, set a budget before you consider looking for the suitable car for yourself.

1. Loan Amount

Loan amount is approved by a surveyor that is appointed by the lending company who ascertains the used car's condition and approves loan amount. Mostly, the maximum loan amount is limited to 70-80% of the valuation amount. In some cases if your get High LTV, you may even be able to pay for most of it without shelling much out of your pocket. That's only if you get a loan amount sanctioned that is equivalent to the cost of the vehicle.

1. Tenure

Maximum tenure for a used car loan in India is 5 years in most NBFCs/ Financial Institutions. The lender will appraise the age and condition of the car and decide on loan tenure and approval. If the car requires a lot of maintenance, loan amount and tenure sanctioned will be less. Ideally, avoid buying cars with a life older than 5 years since they require a lot of care and maintenance after that and lenders become cautious about giving loans for such worn out assets.

1. Documents and Eligibility Requirements

   1. Eligibility:

      1. Resident Indian, above age 18

      2. Salaried: Employed for minimum 2 years, with min. 6 months at current job

      3. Business owners: Should be in current business for min. 1 year

   2. Documentation:

      1. Identity & address proofs (KYC documents)

      2. Valid income proofs

      3. Passport Size Photograph

     5. Bargain on Interest Rates, Processing Fee, and Other Charges

Typically, NBFC/ Financial Institutions charge more than the usual interest rate for a new car, with all rates being floating according to your credit score and down payment making capacity for a period of up to five years. Interest rates are different in NBFCs/ Financial Institutions therefore, it is important to consider all options before zeroing on any one. Another factor to consider is processing fees and ancillary charges. Most people consider interest rates, but fail to account for ancillary charges and processing fees which may increase your total loan repayments.

1. Vehicle Paper Work

You can request the insurer to check if the vehicle had any claim registered against it in the past. Assure the paper work is clean. Get the registration book (shows the vehicle's date of registration), taxation book (status of tax paid), invoice (chassis no., engine no., date of delivery, etc.), PUC certificate and other important documents from the seller. The seller must also notify the RTO within two weeks of transfer of legal ownership so that all papers are sorted easily.

1. Vehicle Inspection

Make sure the vehicle is in shape and does not require too much repair. The car must be in a good condition so that there no overhead charges when it will be on the road. Do not avoid a test drive. Check for the service reports of the car. It will be better to own a car that has been serviced at authorized centres, having a history. A pre-owned car loan takes more time to process than a new car loan and the lending company will send their own surveyor to confirm the age and wear and tear of the vehicle so that loan terms may be fixed.

Conclusion:

Shopping for a car is definitely more exciting than figuring out which loan to take, but both decisions are equally important since you will have to deal with both for quite some years. Hence, make sure you do your research properly before applying for a loan to buy that dream car of yours.