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

As India is gradually emerging from the COVID lockdown, the way people are commuting is visibly changing. To maintain social distancing and personal safety, Indians are leaning towards private transport modes rather than public ones. At the same time, they are careful about their spending habits. So, naturally, the demand for used cars is increasing. While a used car loan can meet this demand quickly, it is important to bag a low-interest rate to repay the loan conveniently.
 
So, find out why a used car is a wise choice, why you should use a loan to buy it, and how you can ensure a low-interest rate.
 
Also Read: Guide to Financing Your NEW Used Car
 

Here is why it makes sense to buy a used car

 

• They are significantly cheaper compared to the new ones. 

 

• They come with a warranty and lower insurance payments.

 

• When it comes to depreciation, cars lose the majority of their value in the first few years of ownership. Once it is two to three years old, it depreciates at a much slower pace. So, on purchasing a used car, you get a depreciation benefit.

 

• Since the majority of wear and tear occurs in the first few years, the expense of maintaining a used car is slightly lower than a new car.

 

• When you choose to buy a used car, you save money on a variety of things. For example, you are exempt from paying road tax. The registration fee for the used cars is also comparatively lower for new cars.

 

• You can readily establish the regular costs—fuel expenses, maintenance charges and more—associated with them because you have the vehicle's history and a detailed review of users who have been using the same model for a long time.

 

• Used cars are now available in a variety of models. With new models coming out every day, more people are selling their old cars to get one of the recent releases. 

 

• The chances of getting a pre-owned car loan have increased with many new lenders entering the market.  

 

Advantages of purchasing a pre-owned car with a loan

 

• If you take a loan, you will not have to dig into your savings or borrow money from a friend or relative. Moreover, you will not have to pay a large sum in one go.

 

• The loan amounts are usually sufficient, allowing you to choose from a great variety of cars according to your taste and needs.

 

• A hassle-free process with minimal paperwork, requiring only the application form to be submitted directly at the lender’s branch office with basic documents, is a point in its favour. 

 

• The flexibility offered by lenders is another significant advantage—the consumer can choose the loan amount, EMI, and tenure as well. 

 

• Reputed lenders usually offer flexible tenures to make the repayment process comfortable.

 

• Lenders also offer competitive interest rates.

 
These factors make taking a used car loan preferable to a new car loan.

Also Read: Essential Guide for Buying a Used Car
 

Tips to get the best-used car loan interest rates

 

1. Keep track of your credit score

   What are the factors that affect used car interest rates? Of course, a good credit score. So, get your credit score checked by a reputed credit rating agency. The higher your score is the lower will be your interest rate.
    

2. Pick the right lender offering the lowest interest rates for used cars

   The consumer should be aware that the loans pre-approved by the car dealership generally come with a significant mark-up. To avoid such issues, it is advisable to go through all the options carefully and then analyze the offers of different lenders to get the best used car loan financing possible. 
    

3. Ensure that the loan amount is as small as possible

   As a consumer, it is in your best interest to negotiate with the car dealer and get the car at a bargain. Following this, ensure that you make as large a payment as possible as a down payment, for the second hand car loan’s due amount. This is because lower loan amounts attract a lower interest rate.  
    

4. Choose your car wisely

   If you want to get an affordable used car loan interest rate, make sure the car you are financing has a greater resale value. The reason behind this is that cars with a greater resale value reduce the lender's risk significantly. In the event of default, a car with a greater resale value gives the lender a better chance to recoup the majority of their debts by auctioning the vehicle.

    5. Car's condition

 If the car you want to buy is in bad condition, your prospects of getting a lower second-hand car loan interest rate are slim. Therefore, before purchasing a car, make sure to inspect it for dents, scratches, interior damage, and other issues. You should also inspect the engine for any vibrations and ensure that the battery is in good working order. But how are you going to learn about these things? The answer is to take a test drive. If you are a newbie, you may seek professional assistance in determining the health of your vehicle.
 

   6. Car's documents

If the car you want to buy is missing any important documents, the lender will not approve you for a loan. Check that the car registration certificate papers, the road tax receipt, the original sales invoice, the insurance papers, and the service record book are all in order. The records assist you in determining who the original owner is, as well as keeping track of the vehicle's condition.
 

   7.Get your timing right

Approaching a financial institution at the end of the year, month, or quarter, when they are desperate to meet their targets, is a great strategy to get a good interest rate for used cars.

Also Read: Points to Consider Before Taking a Used Car Loan
 

Bottom-line

Although the interest rates on pre-owned cars are usually higher than on new ones, being aware of the above pointers can help you land a great deal. So, assess your needs and budget well, research different lenders and compare their offers, read terms and conditions carefully, and then make a choice.
 
Disclaimer: This post was first published on 16 June 2020 and has been updated for the latest information, freshness, and accuracy.