Factors You Should Consider Before Taking Second hand Car Loan

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If you have just learned to drive, getting a second-hand car to test and hone your skills is a great idea. While the pre-owned car market in India is large, only 15% of it is backed by second had car finance. The primary reason for this is that people prefer taking a personal loan that involves less documentation over a second-hand car loan. That said, a used car loan is a much more economical option. Here are a few factors you should keep in mind before taking a loan for a second-hand car. 

Interest rate

A second-hand car loan is secured by the car you will buy. While the lenders may not consider it as low risk as a new car loan, it is considered considerably safe than a personal loan. Therefore, the interest rate charged on a used car loan is typically much lower than the same on personal loans. Further, if you take the loan for only a part of the market value of the car you may be able to negotiate even lower interest rates. 

Loan amount

Typically, you can get a loan for up to 70% to 90% of the car’s market value. An inspector assigned by the lender evaluates the value of the car. A few lenders could instead use the insured declared value of the car rather than appoint an inspector/ evaluator themselves. If you opt instead for a personal loan, the amount the lender is willing to lend depends on your income and credit rating alone. While you may have to pay some of the car’s price out of your pocket, taking a used car loan may still be better due to the lower interest rate. This will bring the overall cost of ownership down. 

Loan tenure

The tenure of a second-hand car loan depends on the age and condition of the car. It could be a maximum of five years, with an option to pre-pay the entire loan amount before the tenure expires. 

Credit score

As a second-hand car loan is secured loan, lenders tend to provide the same even if your credit score is on the lower side. A personal loan, on the other hand, requires a healthy credit score, or the interest rates charged could be forbiddingly high. 

Loan approval process

A second-hand car loan may take up to a week to be processed. A personal loan, on the other hand, is generally disbursed within 2 to 5 days. The loan approval process may take even longer if you are buying the car from a seller in the unorganized sector. 

Repayment schemes

A flexible repayment scheme offered by the lender would make it easier for you to pay off your EMIs on time. It would also be a convenient and hassle-free experience. 

While personal loan and used car loan both have their advantages, used car loan is the better choice for most car buyers. The reason for this is the lower interest rate and easier eligibility criteria.