Owning a car is a matter of utmost pride and celebration, and although many people opt to buy a brand-new car, some still choose to purchase a second-hand or used vehicle as it arrives without making a hole in the pocket. Subsequently, many financial institutions provide used car loans at attractive interest rates and proper car valuation and flexible repayment schemes. However, one must be aware of the various factors that could prove to be quite critical while buying a used car on EMI.
Scroll down to know more about the things to look out for a while opting for a used car loan.
– Car Valuation –
Upon purchasing a used car through loan, a critical factor that you should consider is getting the vehicle thoroughly evaluated to know its market price. The car should be properly valued based on multiple factors, including the kilometres it has driven, whether it has been used for personal or commercial use, the modifications being done on the vehicle, any accidents it has been involved in, etc.
– Interest rates –
It is essential to know that used car loan rates are higher than that of new cars and range between 10 and 17 per cent. Hence, make sure to compare the interest rates offered by different lenders before finalizing them, as it may change depending upon the vehicle type, credit history, customer profile, etc. In addition to it, pay attention to other charges such as the processing fee that ranges from 1% to 3% of the car’s value.
– Repayment period –
Another critical factor to emphasize upon while buying a second-hand car on EMI is choosing a short tenure. While some lenders may offer repayment tenure of up to 7 years to extract more interest from your side, try to keep it within three years.
– Loan amount –
Usually, the lenders finance up to 70-90% of the used car valuation, as computed based on their valuation. For instance, if you are purchasing a used car for six lacs and the financial institution providing 80% of the car’s cost values your car at 5 lacs, then the lender shall provide 4 lacs (80% of 5 lac), and the rest of the money i.e. 2 lacs shall be financed from your savings. Hence, keep an eye on the lender’s valuation and their share before confirming the loan amount.
– Down payment and EMIs –
After deciding the loan amount, try to provide a substantial amount as your down payment as it will help in efficiently managing your EMIs after that. Also, calculate your EMI amount through the used car loan calculator by entering your loan amount, tenure, and interest rate.
– Documentation –
A key component of purchasing a used car is proper documentation. The bank approves the loan only after the car title has been officially transferred to the buyer’s name. Sometimes, the bank also rejects your loan application if the car insurance has not been renewed or the Registration Certificate (RC) or Pollution Under Control Certificate (PUC) is not in proper order. Therefore, make sure to keep a close eye on car-related documents to avoid any rejection at a later stage.