Buying a car is a dream that one harbours at least at some point in their life. In general, buying a car simply means buying a new car and yet buying a secondhand car looks like a better bet for many.
After all, if you are a new driver, it makes sense to buy a used car, experience driving without fear of bumping here and there even as you master that art. For others, second car fits better in the budget. Many rely on a secondhand car loan to fund the secondhand car vehicle.
While not being able to afford a new car is one of the key reasons for the growing used car market, the fact remains that any pre-owned vehicle comes with its own teething problems. One of those also includes taking a loan on the said vehicle, which may not be as cheap as it seems on paper. Here are some things to consider before you go ahead with buying that used car using a loan:-
1. Loan Amount
While some banks give even the entire amount of car cost on loan, most offer up to 90% of the on-road price for a new car loan. When it comes to your old car loan, however, the loan amount could be restricted to 80% of car valuation. Also, there could be additional eligibility criteria for loans above Rs 5 lakh for used car loans.
2. Loan Tenure
For all used cars, the loan tenure varies between 3-5 years, while for a new vehicle with some lenders, one can get a loan tenure of up to 7 years as well. Additionally, there will be the criteria of the age of the used car as well. For instance, one of the public sector banks gives used car loans only for vehicles that are eight years old or less.
New car loans can get interest rates between 8% -14%, while the used car loans will come with an interest rate ranging from about 9% onwards to 18%.
3. Interest rate
This is the area where a new car loan buyer gets a significant advantage over the used car loan buyer. New car loans can get interest rates between 8% -14%, while the used car loans will come with an interest rate ranging from about 9% onwards to 18%.
4. Checks before disbursement of a used car loan
Unless it is a new car, you may have to ensure that ancillary requirements of the loan lender are taken care of. These could include obtaining Credit Information Scores (CIC), income invoice price of the car, and the like. Also, check the loan processing, pre-payment terms and penalties for defaults, etc. as these could vary from lender to lender. Also, try to obtain a six month or buy back warranty from individual sellers on the same to ensure that your money is spent in the right direction.
While it is easier to obtain a loan on a used car, unless a thorough inspection is done, it is advisable not to buy one. In case you do plan to buy one, it is better to buy it by doing the saving first, spending later approach so that you get a better deal on the same.