Top 5 Things You Must Know Before Applying For A Pre-Owned Car Loan

Everyone desires to drive their dream car. If you can’t afford a new one, especially at the start of your career, there’s no wrong in choosing a pre-owned or used car, which will also get you closer to your ideal. A used car is a popular choice for many first-time buyers due to its cheaper initial cost. However, before purchasing a used car, you must complete all due diligence, such as inspecting the vehicle’s condition, history, and registration documents, among other things. Also, if you want to get a used auto loan, evaluate all loan offers to locate the one with the best repayment conditions. Here are five things to bear in mind when considering a used automobile loan:

Top 5 things to check before applying for a pre-owned Car Loan

Interest Rate and Loan Tenure

The interest rate on a used automobile loan is often greater than the interest rate on a new car loan. This is due to the increased hazards connected with a secondhand car. Although it varies by lender, the interest rate on a used car loan is often between 14 and 20%. When applying for a used auto loan, consider the age, kind, and make of the vehicle. A used car loan might last anywhere from one to five years. Lenders are typically strict about used car loan terms because they do not want to spread their risks over an extended period of time.

Eligibility and Documentation

Lenders’ qualifying criteria for issuing a used automobile loan are often the same as for a new car loan. For example, they consider borrowers’ age, monthly income, credit score, and so on. In the event of a used car loan, they additionally assess the car’s condition and age. Lenders request fundamental documents such as your PAN card, Aadhar card or voter-id card, bank bills, income slips, automobile registration certificate (RC), and insurance copy throughout the documentation procedure for a used car loan.

Sanctioned Loan Amount

If you don’t want to pay the entire sum at once, a used auto loan is an excellent option. Despite receiving a loan, you may be required to make a down payment on your car. Lenders typically approve loans for up to 80% of the car’s market value. And you may have to pay the balance out of your own pocket. Furthermore, the lender approves the loan amount based on the car’s market value as calculated by it, rather than the actual price you pay for the car. It means that if you’ve agreed to buy a used automobile for Rs. 5 lakhs but the lender deems its worth to be Rs. 4 lakhs, the loan may be approved.

Extra Charges

To prevent paying any hidden charges over and above the sanctioned loan amount, it is important to obtain clarification from the lender regarding any additional charges that the buyer would be required to pay. Costs including processing fees, stamp duty, and foreclosure charges may be charged to the buyer. Before applying for a loan with any lender, it is a good idea to perform some product research.

Loan To Value (LTV)

LTV, as the name implies, is the amount of loan that will be eligible as a percentage of the vehicle’s worth. In the used car finance market, the lender typically does not provide the loan applicant with a whole loan amount. The LTV ratio for used vehicles is often between 80% and 90% of the car’s value. This is also dependent on the applicant’s credit score and may vary. If the buyer’s credit score is good, he or she should look for lenders with a greater LTV component, assuring a quick and smooth loan process.

A second-hand automobile loan might greatly assist you in making your dream of owning a car a reality. However, it is important to examine loan packages from many lenders and select the best-suited used auto loan for you. Like this post? Don’t forget to check out our other short stories in our Quick Read section