A Beginner's Guide to Buying a Used Car on Loan
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Beginner’s Guide to Buying a Used Car on Loan

Beginner’s Guide to Buying a Used Car on Loan

Wondering if you can make a pre-owned car yours without emptying your wallet in one go? Well, you’re in the right place! Today, we’re diving into the world of buying used cars on loan, making your dream car more accessible than ever.

Ever wondered, “Can I buy a second-hand car on an Equated Monthly Instalment (EMI)?” or “Can we take a car loan for a second-hand car?” The answer is a resounding yes! Banks and lenders across India offer the opportunity to buy a second-hand car on finance. It’s a game-changer for those who prefer the affordability and value of pre-owned vehicles.

In this blog, we’ll explore the ins and outs of getting a loan for used cars, covering everything from eligibility to interest rates. So, fasten your seatbelt and get ready for a journey towards owning your dream car without breaking the bank!

How To Get A Used Car Loan

Picking the perfect loan term is like choosing the right route for your road trip — it should lead you smoothly to your destination without any unexpected bumps along the way.

Let’s take a closer look at some of the factors that contribute to this process: 

Eligibility Criteria

Before looking into second-hand cars on EMI, it’s crucial to understand the eligibility standards imposed by lenders. These criteria are the gateway to securing your loan for that dream car. 

Here’s what you need to know:

1. Age Matters

  • Lenders generally require you to be between 21 to 65 years old to qualify for a used car loan
  • This age bracket ensures you have a stable financial foundation for repayment

2. Steady Income

  • A reliable source of income is paramount
  • Lenders want to be assured that you can meet your monthly payments
  • Your salary slips or bank statements often serve as evidence of this income

3. CIBIL Score 

  • A CIBIL score of 720 or higher is generally considered to be good, and it will increase your chances of securing a used car loan with favourable terms
  • A lower CIBIL score may still make you eligible for a loan, but you may have to pay a higher interest rate or make a larger down payment

4. Employment History

  • A consistent employment history adds weight to your application
  • Lenders may favour borrowers with a steady job record, as it indicates stability and an ability to repay

Required Documents

When you’re ready to set sail on your used car loan journey, having the right documents is the next step in ensuring you get a favourable loan offer. 

These are the documents you’ll need:

1. Proof of Identity and Address

  • This is your ID card – Aadhaar card or passport will work as proof of identity and utility bills or rent agreement as address proofs

2. Income Proof

  • Lenders want to know you have a steady income
  • Share your salary slips and/or bank statements as evidence

3. Vehicle-Related Documents

  • These are crucial – the Registration Certificate (RC) and insurance documents of the vehicle you’re planning to buy
  • These documents prove that the vehicle is registered with the appropriate authorities and that you’re buying a genuine, insured set of wheels

Interest Rates

The interest rate is like the heartbeat of your used car loan — it determines how much extra you’ll pay for borrowing money. Understanding this crucial factor can save you a lot in the long run. 

Here are a few things you need to know about the interest rates:

1. Shop Around

  • Interest rates aren’t one-size-fits-all
  • Different lenders offer different rates (usually between 11-16% per annum), so, don’t settle for the first offer you get
  • An interest rate of 12% per annum is one of the lowest rates as per industry standards
  • Additionally, explore what banks, credit unions, and online lenders have to offer and make a decision

2. Lower Rates, Less Cost

  • The golden rule is simple – lower interest rates mean you pay less overall
  • Even a small difference can add up to significant savings during your loan term

3. Homework Pays Off

  • Before you commit, do your research and compare rates
  • Use online tools and calculators to see how they impact your monthly payments and the total cost of your loan

Also Read: 10 Things to Look Out for When Buying a Used Car

Loan Terms

Loan terms are like the chapters of your used car loan story — they determine how long your financial journey will be. Let’s break down this important aspect into digestible bits:

1. Duration Matters

  • Loan terms are essentially how long you have to repay the loan
  • Commonly, used car loans span from 1 to 7 years
  • A shorter term means higher monthly payments but less overall interest
  • Longer-term offers lower monthly payments but may lead to higher total interest costs

2. Budget and Goals

  • To choose the right term, consider your financial situation and goals
  • A shorter term can be more financially efficient if you can manage higher monthly payments
  • On the other hand, a longer term may provide breathing room in your monthly budget but may cost more in the long haul

Also Read: New Car Loan vs Used Car Loan

How to Choose the Best-used Car Loan

Now that you’ve got the essentials of securing a used car loan, let’s dive into the art of picking the perfect one that fits you like a glove. It’s a choice that ensures a smooth ride, so take your time and choose wisely.

Here’s your roadmap:

1. Compare Interest Rates and Loan Terms from Different Lenders

  • Interest rates are the heartbeats of loans. They vary, so don’t rush. Compare rates from banks and financial institutions.
  • Pay attention to loan terms too. A shorter term might mean higher monthly payments but less interest over time.

2. Consider Your Credit Score and Debt-to-Income Ratio

  • Your credit score is your financial report card. A good score can unlock better deals. Maintain it.
  • Lenders look at your debt-to-income ratio. Keep it reasonable; it’s your monthly debts versus your income.

3. Choose a Lender with a Good Reputation

  • Reputation speaks volumes. Research. Read reviews. Seek recommendations.
  • A lender with a solid track record means transparency, fair terms, and top-notch customer service.

Also Read: 10 Common Auto Loan Mistakes You Should Totally Avoid

Tips for Buying a Used Car on a Loan

Now that you’re well-versed in the financial aspects, let’s navigate the practical side of purchasing a used car on loan. Here’s your road map:

1. Research the Vehicle

  • Dive into the car’s history. Investigate its make, model, and any past accidents.
  • Check if there are any outstanding loans on the vehicle. Red flags here could save you from future headaches.

2. Negotiate the Price

  • Don’t shy away from haggling. Negotiate with the seller for the best deal.
  • A lower purchase price means a smaller loan amount and less to repay.

3. Inspect the Vehicle

  • Before sealing the deal, get a trustworthy mechanic to inspect the car.
  • They can uncover hidden issues that might lead to costly repairs later.

3. Understand the Terms and Conditions

  • Read the fine print of your loan agreement thoroughly.
  • Ensure you’re comfortable with the repayment schedule and any additional fees mentioned.

4. Check Ownership History

  • Verify the car’s ownership history. Ensure that the seller has a clear and legal title to the vehicle. 
  • This prevents future legal complications.

5. Consider Total Cost of Ownership

  • Don’t focus solely on the car’s purchase price. Factor in other costs like insurance, fuel, maintenance, and annual taxes.
  • This gives you a more realistic picture of your ongoing expenses.

6. Research Loan Penalties

  • Understand the penalties for late payments or early loan repayment.
  • Be aware of any hidden charges or penalties that might affect your loan experience.

Also Read: Selling A Car With An Existing Loan – Step By Step Guide

How Much Loan Can I Get on a Pre-Owned Car?

When it comes to financing your dream pre-owned car, understanding how much loan you can secure is crucial and helps you set realistic expectations and ensures you’re well-prepared to drive away in your chosen vehicle.

Let’s break it down

1. Depends on Your Income

  • Your income is a major factor.
  • Lenders want assurance that you can comfortably repay the loan.
  • A higher income often means a larger loan.

2. Credit Score Matters

  • Your credit score plays a significant role.
  • A good credit score can open the door to a more substantial loan amount and better interest rates.

3. Lender’s Policies

  • Lenders have different policies, but generally, they may finance up to 80-90% of the car’s value.
  • This means you may need to make a down payment to cover the remaining cost.

4. Discuss with Your Lender

  • To know your specific loan amount, have a chat with your chosen lender.
  • They’ll assess your financial situation, credit history, and policies to determine the loan amount you qualify for.

Also Read: How To Transfer a Car Loan to Another Person?

The Bottom Line

Buying a used car on loan is a viable option for many individuals in India. By understanding the eligibility criteria, required documents, interest rates, and loan terms, you can navigate the loan application process with confidence. 

Remember to compare offers from different lenders, maintain a healthy credit score, and choose a reputable lender for a smooth buying experience. With careful planning and research, you’ll soon be driving your dream car on the roads of India.

If you’re looking for financing options for a pre-owned car, CARS24 Financial Services, gives you the freedom to customise your EMIs, buy a car with zero down payment and ROIs starting at as low as 12% p.a. Check your eligibility now!

FAQs

Q. What Is a Pre-Owned Car Loan?

A pre-owned car loan is a type of financing that allows you to purchase a used vehicle by borrowing money from a lender. You repay the borrowed amount, along with interest, over a specified period. This enables you to own a second-hand car without paying the full purchase price upfront.

Q. What is the maximum loan amount I can get for a used car?

The maximum loan amount for a used car loan depends on your financial situation, creditworthiness, and the lender’s policies. In general, lenders may finance up to 80-90% of the car’s value. To determine your specific loan amount, consult with your chosen lender.

Q. What documents do I need to apply for a used car loan?

Commonly required documents for a used car loan application include proof of identity (Aadhaar card, passport), proof of address (utility bills, rent agreement), income proof (salary slips, bank statements), and vehicle-related documents (RC book, insurance). However, specific documentation requirements may vary by lender, so it’s advisable to check with your chosen financial institution.

Q. What are the loan terms for used car loans?

Loan terms for used car loans typically range from 1 to 7 years. The specific term you choose will impact your monthly payments and overall interest costs. Shorter loan terms result in higher monthly payments but lower overall interest, while longer terms have lower monthly payments but may accrue more interest over time. Select a loan term that aligns with your budget and financial goals.