A long road trip with one’s friends and family with the stereo blasting their favourite music has been on everyone’s bucket list. The prerequisite to execute this is a four-wheeler vehicle of your own. Renting a car might cross your mind but a rented car might end up making you feel a little restricted whenever you’d want to go a little over the bridge. Don’t have enough saved up for a car? You must keep an open mind for second hand car finance and take up a loan for a used car.
Obviously, you might feel that if one is taking up a loan to purchase a vehicle of their own, why not take up a loan for a brand new vehicle. But buying a used vehicle can be much more profitable than buying one straight out of the showroom. You would be able to purchase a vehicle of your own at much more affordable rates and direct your finances at other important aspects in life. In fact, you might end up getting more value for the money if you manage to find a used vehicle in an excellent condition. Since the market value of an old car is quite less as compared to that of a new vehicle. Therefore, the vehicle insurance premium also lies on the lower side and insuring it costs much less. A brand new vehicle tends to lose a chunk of its value within the first few years of its ownership. So, in the case of a used vehicle, the previous owner takes the mighty depreciation hit. If you are proper with the maintenance schedule concerning your second hand vehicle, you will end up getting a great value for it whenever sold. The major benefits and features fencing a second hand car finance are mentioned below:
- Since the vehicle would be available at a much cheaper rate, the loan amount that you might have to apply for would be comparatively much less. Therefore, your monthly EMIs including the principal and interest amount will be low.
- Long and flexible repayment tenure.
- Certain banks and NBFCs provide up to 100% financing for the purchase of the vehicle.
- The application process is simple and effortless to go through. There is minimal documentation or paperwork required which can also be comfortably completed online.
- The insurance costs and depreciation rates are much lower when compared to a new car.
Used Car Loan Intrest Rate
Numerous banks such as Punjab National Bank offer used car loans interest rate starting from 7.75 % per annum while others such as TATA Capital extend loans with rate of interest beginning at 15% per annum. Some of the main factors that affect the used car loan interest rates in India are mentioned below:
- Debt-to-Income Ratio: The debt-to-income ratio indicates how much of your monthly income is going towards the repayment of your previous debts. You can calculate your DTI ratio by summing up all of your existing EMIs and dividing it by your gross monthly income. If your DTI is greater than 40, you must not push yourself towards another loan as it might lead you into a debt trap. The DTI ratio is also an important factor which is considered while determining the used car loan interest rate. Your application will be rejected, or the interest rates will be extravagantly high if your DTI ratio is high.
- Repayment Tenure: Usually, the rate of interest is inversely proportional to the repayment tenure. Banks and Financial Institutions extend loans at low interest rates in case you opt for a longer repayment tenure. However, you will end up paying more interest. Even though the interest rates are high for a shorter repayment tenure, the overall amount that you pay for the car will be low. Therefore, it is essential to check the EMI plan before one finalises a decision regarding the repayment tenure.
- Increase the Down Payment: Banks and financial institutions extend loans at low interest rates if you make a greater down payment. The monthly burden upon your income, EMIs will also significantly reduce since the principal amount would be lower. A high down payment also portrays the borrower as a financially sound person to the lender which can result in an added benefit in further reducing the rate of interest.
- Relationship with Bank: If you are an existing customer of the bank and share a good relationship with them, you can easily negotiate your way into the loan scheme by submitting a formal written request to the loan provider. Therefore, you must contact your current bank before approaching any other lender for a lower used car loan interest rate.
- Vehicle Age and Model: No security or collateral is required to be pledged or provided while availing a used car loan. If the equated monthly instalments are not paid off timely, the car will be seized by the lender. Therefore, the model and the age of the vehicle is considered while determining the rate of interest. Lower interest rates are provided for newer vehicles or vehicles from reputed manufacturers.
- Income: Banks and financial institutions check your income when they fix the interest rates upon the loan availed for. Individuals with a steady income and a stable occupation are provided with a lower interest rate. The company you work for, and the job profile is also considered while determining the interest rates.
- Credit Score: Your creditworthiness is determined by your credit score. Higher your credit score, the better are your chances to get a loan at a cheaper interest rate. Banks and financial institutions fancy and prefer applicants with credit scores of 750 or higher. If you have a credit score below 750, you must start looking for ways to improve it. You can improve it by reducing your credit usage, don’t use more than 30% of the limits and even if you are not using your older credit cards, keep them open.
How to Apply for a Second Hand Car Finance
In order to avail a used car loan with competitive interest rate, you must do a thorough research and compare the different loan schemes available in the market. You must consider factors such as urgency, convenience, processing fee with the GST, maximum loan amount, loan tenure, prepayment fee, part payment fee, disbursal fee, EMIs, charge on outstanding EMIs and obviously the interest rate. Later you must follow the following procedure:
- Opt for an online application process as it is effortless, saves time and can be done through the comfort of your home.
- You can use the used car loan EMI calculator to check the monthly payments and plan out your future financial endeavours. The calculator is easy to use and you simply are required to feed in basic details such as the tenure, loan amount, processing fee, and interest rate.
- Keep the relevant documentation ready. Any delay in submitting the documents will lead to a longer time for the loan to be processed.
- Choose an established and esteemed bank or financial institution so that the loan processing and approval is quick.
You might not end up with the best interest rate by simply following the basics, you must put more work into it. If you are out asking for what else you must do for a lowered used car loan interest rate, stop enquiring and read it all over again!