Nowadays, most lenders in India provide loans to purchase used cars. However, getting a loan for a used car is difficult and drawn out. Before accepting a loan for a used automobile, lenders consider several variables, including the age of the vehicle and if the model has been discontinued. In addition, second-hand automobile loans can have higher interest rates than new car loans. This forces many customers to search for other options.
A pre-owned car loan interest rate is usually higher and depends on your profile and the age or sector of the vehicle. If you’ve kept up a decent credit score, your interest rate will probably be around the lower end of this range. Personal loans become helpful in this situation. A personal loan is simple to obtain and has no end-use restrictions, so the borrower is free to use it to pay for the purchase of used cars.
Application for A Used-Car Loan
Following a buyer’s loan application, the financial institution names an expert to value the used vehicle. For loans lasting one to five years with an age limit of 8 to 10 years, financial institutions will lend up to 80 to 85% of the used car’s whole worth. The buyer will bear the cost of the down payment and the difference.
Additionally, a buyer should choose a more recent car model, no older than two to three years, as the older the car, the more difficult it is to get financing.
1. Interest Rate
The condition of the vehicle is the main factor that lenders consider when determining the pre-owned car loan interest rate at which to approve a loan for a used car. The interest rate is lower for newer cars. The interest rates for used car loans now range from 7.75% to 16.00%.
The borrower’s income, credit score, and debt-to-income ratio are other factors that influence the interest rate. The buyer’s down payment, relationship with the bank, and the repayment period are further factors that affect interest rates.
However, these rates can differ from one lender to another. While many consumers choose to obtain a loan from financial institutions and NBFCs directly, OEMs and used car dealers are now aggressively using their alliances to provide customers with customised finance solutions that meet their different demands.
2. Loan Terms
The loan term varies from three to five years for all used cars, but it can go up to seven years for a new car with some lenders. The used car’s age will also factor in the selection process. For instance, only used cars that are eight years old or newer are eligible for loans from one of the public sector banks.
The Difference Between A Personal Loan and a Used Car Loan
To make an informed choice regarding which loan to apply for, it is crucial to comprehend the difference between personal and used-car loans.
1. Initial payment
A lender can finance only 80–85% of the entire car value; the buyer is responsible for the remaining balance. On the other hand, personal loans do not have an end-use restriction so that a buyer can obtain the full amount of the car approved.
2. Collateral
The major distinction between a personal loan and a used automobile loan is collateral. In the event of a personal loan, the borrower is not required to give the lender any security. When a borrower takes out a used-car loan, the vehicle itself serves as the security given to the lender until the debt is repaid.
3. Procedure
Getting approved for a used car loan is more challenging than getting a personal loan. Before granting the loan, the lender looks into every possible aspect of the used car. On the other hand, lenders do not inquire why a customer with a good credit score requests a personal loan.
Conclusion
It might be challenging to get a used car loan approved. If the present owner still possesses the car, financial institutions would probably want to inspect and authenticate the vehicle, which may not be easy. Additionally, the lender’s final pre-owned car loan interest rate may be very high if the car is old and in poor condition.
A personal loan can be the simpler and wiser choice in this situation. Strong credit borrowers could even qualify for a personal loan with a rate lower than used car loans. Customers should, therefore, evaluate the personal loan offers from several lenders and select a reputable company
