Important Things That You Must Know Before Buying Used Car On Loan

Introduction

The pre-owned car market has seen a substantial rise in sales in the recent times. This can be because the used car market is organised like never before. It means not only do you get to buy an affordable car but also get to choose from a wide range of vehicles. Moreover, to your delight, financial institutions provide loans for used cars at attractive terms.

Take the case of Raj, who, with his family of four is considering buying a used car/second-hand car on loan. This will not only resolve the financial dilemma but will also make commuting comfortable and allow him to engage in his passion for long-drives, exploration and travelling. However, before he delves into the process, here are few things that everyone must know before buying a used car on loan.

Important Things That You Must Know Before Buying Used Car on Loan

1. Eligibility:

The eligibility criterion is the first step to understand the loan process. The criterion is different for a second hand car and a new car. The terms of these loans also vary for salaried professionals or self-employed business-persona. They are based on the take-home salary, number of working years, prior loans, and credit score. So, before exploring the market for a used car, make sure to check if you are eligible for the pre-owned car loan.

2. Car Valuation:

Car valuation is an important aspect of the loan process, as the final amount sanctioned will depend on the price of the vehicle. You can estimate the value by determining factors like the condition of the vehicle, number of kilometres driven, the car model, service history, and car history. Any scratches or dents will work affect the price. The condition of the vehicle is also determined if it passes the maintenance test, and inspections drafted by the state regulations. The car model also plays an imperative role in making sure that it has not been worn down with time.

3. Loan Amount:

When you avail a used car loan, the maximum loan amount that you can avail is limited to 70 per cent to 80 per cent of the valuation amount as assessed by the loan officer in his/her survey of the vehicle. However, in case you are eligible for a personal loan amount that is equivalent to the offered price of an old car, then you will not have to spend from your own pocket for any down payment. 

4. Processing Fee:

The processing fee is lesser the better. The processing fee is based on the loan amount and usually lies in the range of INR 2000 - INR 5000. Many financial institutions offer a waiver off the processing fee during festive seasons and you can avail this offer for a better deal. You might say that the initial processing amount is not a big deal but INR 5000 is not the upper limit. It varies with the loan amount and can be quite substantial at the end.

5. Interest Rate:

What makes your car purchase a success is the loan package with the most affordable interest rates. The more the interest rate, the more will be the pay-out from your pocket and vice-versa. In case of used car loan, the interest rate ranges from 9 per cent to 20 per cent per annum across various financial institutions in India. Do remember to check out personal loan interest rates, which usually range from 11.2 per cent to 25 per cent. In case you find the personal loan interest rate lesser than that of used car loan, you can apply for a personal loan instead. A word of advice, a good credit can reduce the rate of interest in certain cases.

6. Loan Tenure:

Loan tenure offered differs according to the age and model of the car. Most financial institutions offer loans for used cars for a tenure of 5 years or so. One important point to keep in mind is that lenders may deny loan on an old car model with age more than 5 years.

7. Documents:

The importance of the right documents cannot be negated in case of loan processes. The documents necessary for the loan process are salary slips in case of salaried employees, financial statements, authentication documents, car valuation documents highlighting the model, the maintenance record, service history, distance driven and adherence to the state transportation regulation.

Conclusion

Buying a used car is as easy as buying a brand new one, thanks to the financial tools like used car loans offered by financial institutes. Once you have decided on the type of car that you are investing in and the loan that you are taking up, the loan will be sanctioned with due compliance.

Frequently Asked Questions

What factors should I consider before buying a used car on loan?

Consider the car’s condition, mileage, maintenance history, loan interest rates, repayment terms, and your budget before making a purchase.

How can I check the condition of a used car?

Inspect the car personally or hire a professional mechanic. Check for any signs of damage, test drive the car, and review its maintenance records.

What are the benefits of buying a used car on loan?

Buying a used car on loan allows you to spread out the cost over time, making it more affordable without draining your savings.

How do I determine a fair price for a used car?

Research similar models online, consider the car’s age, mileage, condition, and get a professional evaluation if possible.

How does my credit score affect my loan application?

A higher credit score can help you secure a loan with lower interest rates and better terms, while a lower score may result in higher rates.

What is the Importance of Mileage for Used Cars?

The importance of mileage for used cars indicates how much a car has been driven, affecting its wear and tear, maintenance needs, and overall lifespan, making it a crucial factor in assessing a used car's value and reliability.