One of the sectors which have suffered the worst due to the economic slowdown in India is the automobile sector. In the previous fiscal year, only 3.6 million units of new cars were sold.
In sharp contrast, the sale of second-hand cars has been promising in the same period. The number of used cars sold in the previous Financial Year was 4 million. Second-hand car sellers such as Car Dekho have estimated second-hand car sales to continue at a healthy pace of around 20%.
In tandem with the sale of used cars, second hand car loans have also grown at a rate of 15% – 18%.
In regard to it, however, there are certain things to take into consideration before availing second hand car loan.
Things to Consider Before Availing a Second Hand Car Loan
- Interest Rates
One of the primary factors which you should consider when availing any credit facility is the interest rate. It is likewise when opting for a second hand car financing option. In comparison to new car loans, interest rates on used car loans are comparatively higher. It can fall somewhere within the range of 10% – 17% depending on the financer. Thereby, you should thoroughly research the market and find out the most affordable rates you can find from a financer before you apply for a loan.
- Loan Amount
Financiers of second hand car loans employ an extensive procedure before determining the principal of a used car loan. A financer will first evaluate the vehicle you have decided to purchase and accordingly sanction the loan amount. While some financiers evaluate the vehicle themselves, others base it on the insured’s declared value. In any event, they do not provide the whole amount as a loan, but only a percentage of the value of the vehicle in concern. The buyer or borrower needs to pay the remaining portion as a down payment.
Additionally, such valuations can be disparate from the purchase price, which incurs an additional financial burden on you. As an alternative, you can consider a personal loan for a used car loan. A personal loan does not involve any valuation process and its amount solely depends on your eligibility. And even though personal loan interest rates are somewhat like used-car loans, it does not involve any down payment. You can, therefore, conveniently meet the expense of your purchase.
- Repayment Tenor
Repayment tenors on loans for used cars can extend up to 60 months. You need to determine your repayment tenor based on your affordability. Choosing a shorter tenor might increase your EMIs while choosing a longer tenor account can increase the cost on loan. Consider both these factors duly and then select a tenor which suits your affordability. You can use a personal loan calculator to compute your EMI obligation for different tenors.
- Credit Score
Your credit score also plays an integral role in the determination of the applicable interest rate. A healthy credit score would allow you to avail a pre-owned car loan at a lower interest rate and vice versa. As it represents your creditworthiness, a high score would be indicative of low-risk and henceforth, the financer may offer the loan at affordable interest rates.
- Application and Approval Process
You should consider the application process involved in securing a second-hand car loan. Also, take into account the approval time required. As loan sanctioning depends on several factors such as valuation, it might take a week. In addition to that, if you are purchasing the loan from the unorganized sector, approval might be prolonged.
Alternatively, a personal loan application with financial institutions such as Bajaj Finserv is much simpler. You can apply for a Bajaj Finserv personal loan in minutes, and its approval takes only one or two days.
These financers also provide pre-approved offers on loans for further convenience of the borrower in terms of a hassle-free and time-effective application process. These offers apply on a range of financial products which include personal loans, home loans, business loans, etc. You can check your pre-approved offer by providing your name and phone number.
In conclusion, availing a loan means adding a financial burden, and without proper planning, you might face difficulties during repayment. Henceforth, consider the above-mentioned factors to ensure it is in tune with your affordability to make the process more convenient.