Financing Your NEW Used Car

With  increasing disposable income, growing distances between home & workplace, and both husband and wife working - the demand for cars is going up. If we were to look closely at this growing demand one notices an interesting trend, namely, the demand for used cars is fast outstripping the demand for new cars. In fact, many analysts suggest that by 2020 for every one new car sold, there will be two used cars sold in India.

Used cars are usually purchased by new learners or as a second car in the family. They are also the preferred choice of individuals who were looking to purchase a high end two wheeler but decided to upgrade to the comforts of a car, or of young executives who want to own luxury brands, like Mercedes, BMW or Audi, albeit at reasonable prices. Given that cars built today are quite sturdy, a used car can be a reliable mode of transportation for a long time.

To meet this growing demand, the used car market, which was till now dominated by small car dealers, has now become more organized and the buyer is spolit for choice through online portals dedicated to buying and selling of used cars. But given the subjectiveness of a used car’s condition & valuation, there are high chances of getting fleeced, hence research and planning is highly advisable.

The good news is that financing for the purchase of a used car has never been easier. Financial institutions are providing easy options for car loans nowadays. The process is quick and transparent, thus making it convenient for you to plan your purchase.

Though loans are available for the purchase of both used cars and new cars, associated terms and conditions might vary. Take a closer look at the differences here.
 

1. Rate of Interest: The rate of interest is usually higher for a loan for  a used car as compared to that of a new car. Since a used car carries higher risk, it comes at a marginally higher rate of interest. 
    
2. Tenure: In case of new car loans or used car loans, the tenure is determined based on the ability to pay timely EMIs. The applicant can choose the tenure based on his income, ability & intent. If the amount of EMI is less, the tenure will be longer and in case of a higher value of EMI, the tenure will be short.
    
3. LTV: The loan to value ratio is the total value of your loan divided by the actual cash value of the car.
    
4. Documentation Required: Documentation for a used car loan or a new car loan are usually the same. These include identity proof, address proof, proof of income and photographs. The only difference lies in the invoice of the car which is required for a new car loan, and in case of a used car loan, the details about the seller and insurance is required. 
    
5. Car Type: When it comes to financing a car, financiers prefer popular models. More so for used cars, financiers prefer latest and popular models as they have higher resale value. Although loans are available for most car models, popular ones are preferred more.
    
6. Age of Car: Though this is not applicable for a new car loan, it plays an important role in case of a used car loan. Financiers prefer used cars with age less than 3 years for loan purposes. Though, older cars can also be financed. 
    
7. Number of Previous Owners: Financiers prefer a single previous owner in most cases. 

You may fall in love with the latest model of the recently launched car. But is it worth spending a huge amount of money on a depreciating asset? The value of any car is only going to go down from the day you purchase it, hence, purchasing a used car is a viable option. There are various benefits of taking a used car loan. These include:
 

1. Higher value: A car is a depreciating asset. This basically means that the value of the car you purchase today will only lessen in the future. Hence, it makes sense to purchase a used car that is high on quality and has not been used for many years. You get yourself a high quality car and end up spending much lesser.
    
2. Hassle Free: Taking a used car loan is relatively hassle-free. The process is quick, transparent with less documentation. Financiers like Hero FinCorp offer doorstep financing options. This means that an agent of the financier will come to your house, do all the formalities right there, and within a short while you will have the finances to buy the used car of your choice
    
3. Wide Choice: Since you are looking for a used car, you get a wide choice based on the age of the car, kilometers run, manufacturing year, maintenance needed, etc. These factors enable you to choose the brand that is apt for your needs. 
    
4. Quick Approval: With digitization of loan process, the process of loan approvals and disbursals are quicker now. Many financiers are able to disburse loans within 2-3 days.
    
5. Eligibility: The eligibility criteria for a used car loan is simple. The applicant should be an Indian resident above the age of 18 years, should be employed or should own a business. In case the applicant is employed, the employment should be for a minimum of two years and he or she should have spent a minimum of 6 months at the present job. For business owners, the applicant should be in the current business for a minimum period of 1 year.
    
6. Documentation Required: For a quick approval and breezy loan processing, submit your application with all documents as required by the bank or financial institution. The necessary documents usually include: 

• Identity Proof
• Address Proof
• Proof of Income
• Passport Size Photographs
• Insurance Documents.

Factors to Keep in Mind Before Applying for a Used Car Loan
 

Credit score

Review your credit report to check your credit score and understand the parameters that are impeding your creditworthiness. Check to see the various types of negative remarks on your report.  Getting a second-hand car loan approval is difficult if the credit report displays skipped EMI, loan settlement, previous debt defaults, and multiple hard enquiries. 
 

Down payment amount

Financial institutions provide used car loans up to 80% of the loan-to-value (LTV). This means that you must bear 20% of the car's value when purchasing a vehicle. Because a car purchase requires a significant financial commitment, and even a 20% downpayment can have an impact on your budget, it is critical to begin saving for this amount ahead of time.
 
Also, paying a higher down payment can help you secure an affordable loan for a 2nd hand car.
 

Understand the valuation process

The value of the used car you want to buy is determined after taking into account several factors. Typically, the lender will consider the car's make and model, age, condition, and a few other factors. If your desired vehicle is more than five years old, its value will be significantly lower due to depreciation.
 

Check the car-related documents

It is critical to review various documents before finalising a car and approaching a lender for a loan. At this point, you should request a registration certificate (RC), insurance papers, a service record book, and a road tax receipt from the seller. 
 
RC determines whether the seller is the legitimate owner of the car. Insurance papers will tell you if the car has been in an accident in the past. The service record book tells you why the vehicle was brought to the service centre. Last but not least is the road tax receipt; if the original owner has not paid this tax, you should avoid financing that used car to avoid legal consequences.
 

How to Finance a Used Car?

 
You can finance your new used car by going to your lender's nearest branch office and explaining your situation. They will then ask you to provide the necessary documents and fill out the loan application. Your loan will be approved if your information is found to be satisfactory and the vehicle you wish to purchase passes the inspection test. 
 
Another option for financing a used car is to do so online. The steps involved in applying for a used car loan are as follows.
 

• Visit the official website of your preferred used car loan lender. 

• Navigate to the used car loan page and click on the 'Apply for Loan' tab.

• Fill out the necessary information and upload your basic documents.

• If your details meet your lender's minimum eligibility criteria, you will receive a call from the lender's executive to complete the next steps. 

Once the application is accepted, the financier will get the car evaluated and determine the fair value of the car. On the basis of the fair value, the loan amount will be determined. Following the completion of the entire application process, the funds will be credited directly to the account of the car's seller.

Given the demand for used cars , many financiers offer low interests and various other schemes for second-hand car purchase. So what are you waiting for? Get in touch with a trusted financial institution today & bring home your dream car. Owning your dream car is no longer a dream!
 
Disclaimer: This post was first published on 21st October 2016 and has been updated for the latest information, freshness and accuracy.