Used Car Loans: Meaning, Eligibility Criteria, and Benefits
09 December 2024
Two in five consumers, about 44% of them, prefer buying second-hand cars as per data presented by YouGov. While many reasons have contributed to the popularity of buying used cars, the top advantages include lower prices, base taxes and registration costs. Not to forget, the advantage associated with the car already having undergone steep depreciation.
That's not it. The lending market is dominated by great financing options for used cars, more about which we'll speak today particularly focussing on second-hand car loans, types of car loans, the benefits of and steps involved in availing a used car loan, the difference between a used car loan and a new car loan, before ending with a checklist you cannot miss.
Key Takeaways
- Affordability: Used car loans offer a cost-effective way to own a vehicle, requiring only monthly EMIs instead of a full upfront payment.
- Flexible Terms: Borrowers benefit from varied repayment schedules, manageable EMIs, and options to refinance or prepay loans.
- Eligibility Criteria: Requires a CIBIL score of 650+, valid ID and address proofs, and income documentation, making it accessible for salaried individuals and business owners.
- Comparative Advantage: While interest rates for used car loans are slightly higher than for new cars, they are tailored for second-hand vehicles, considering their lower cost and higher depreciation.
- Improved Credit Score: Timely EMI payments enhance credit history, aiding future financial endeavors.
3 Types of Car Loans in India
There are 3 types of car loans in India. A new car loan, a second-hand car loan, and car refinancing. Banks and NBFCs provide these types of car loans.
New Car Loan
You can buy a new car straight from the showroom with a new car loan. Banks charge lower interest rates on this loan. In this loan, you need to make a downpayment of 0 to 10%. Repayment period on this loan is a maximum of 84 months
Used Car Loan
A used car loan helps you buy a second-hand car without paying the full price upfront. Instead, you pay monthly EMIs (Equated Monthly Installments).
You'll typically need to make a down payment of 10-20% of the car's cost. To qualify for this loan, your CIBIL score should be 650 or higher.
Tip: Applying for a used car loan with an NBFC is easier and faster, requiring fewer documents. You can apply online or offline based on your convenience.
Car Loan Refinancing
Car Refinancing allows you to take a new car loan to replace the existing one. Car refinancing provides lower interest rates and better loan terms.
Top 4 Benefits of getting a Second-hand Car Loan
If you want to get a second-hand car loan, you must know about the pre-owned vehicle financing benefits.
1. Affordable Financing on Pre-owned cars
If you apply for a used car loan in India, you do not have to pay the vehicle cost in full and instead focus on monthly EMIs, which will take care of your financial planning.
2. Lower Loan Disbursement
As compared to a new car, the cost of pre-owned cars is lower, which means the sanctioned loan amount will be lower as well. Lower loan amount means lower monthly EMIs that is no-worry of being financially overburdened.
3. Flexible Provisions on the Second-hand car loan
If you decide to buy a pre-owned car by availing a second-hand car loan, you will enjoy flexibility in the loan terms like longer repayment schedule, provision to make multiple repayments over the course of the loan and of course, down payment variations.
4. Higher Credit Scores for Future Financing
Once you decide to get a low-interest pre-owned car loan and pay your EMIs on time, it will improve your credit history, making it easier for you to avail of other types of loans in the future.
If these advantages interest you in exploring the pre-owned car benefits, proceed straight to this link and have the form filled out to avail of this loan.
How to get a Used Car Loan in India?
If you want to take a used car loan, first you must research the lenders. Go for NBFCs or digital lenders who offer the best terms.
| Used Car Loan Eligibility | Salaried | Business Owner/Self-Employed |
|---|---|---|
| 21 to 65 years age | ✔ | ✔ |
| Cibil Score 675+ | ✔ | ✔ |
| ID Proof: Aadhaar/PAN/Passport/Voter ID/Driving License | ✔ | ✔ |
| Experience | 3 yrs of work ex, 1 yr in current firm | 2 yrs of business ex |
| Income Proof | 3 months’ salary slip + 6 months bank ac statements | 2 yrs IT returns + 6 months back ac statements |
Difference Between New Car Loan and Used Car Loan
Using the following table, let us understand a quick car loan comparison between new vs used car loan.
| Feature | New Car Loan | Used Car Loan |
|---|---|---|
| Rate of Interest | Lower than Used Car Loan | Higher than New Car Loan |
| Loan-to-Value Ratio | 90 to 100% of the Car’s Value | 75 to 90% of the Car’s Valuation |
| Loan Tenure | Longer than a used car loan; up to 7 years | Shorter than a new car loan; up to 5 years |
| Car Valuation | Invoice-based i.e. based on the on road price of the car | Relies on the age and condition of the second-hand car |
| Resale Value Impact | Higher resale value due to lower depreciation in the initial years | Lower resale value due to higher depreciation |
| Down payment | Requires lower down payments that is 1 to 10% | Needs higher down payments that is 10 to 20% |
Points to Keep in Mind Before Applying for a Used Car Loan
If the above differentiation has motivated you to apply for a used car loan, we would like to share a few used car loan tips that can help you get your loan sanctioned just in time.
1. Business Line of Credit:
- Choosing a Lender: You can begin by gathering details about lenders online and comparing their interest rates before finalizing on one. If a lender is charging zero processing fees, this adds up as an advantage.
- Interest Rates for Pre-owned Cars: Typically, the interest rate on a used car loan will range between 10-15%. You can shortlist lenders using this benchmark and go for the most lucrative offer.
- Know the Second-hand car's condition: You must ensure the car is in good working condition and has been serviced on a timely basis. This can be done by taking help of a trusted car valuer or dealer to get the car's valuation.
- Have documents in place: Make sure you collect all the necessary personal and car documents before applying for the loan. Also, try to ensure that no dues are pending or disputes involved with the pre-owned car you are interested in buying.
Conclusion
If you are looking for attractive options to own a car and not spend too much, you can buy a second-hand car by availing a used car loan India. Your focus should be on careful planning. In the process of planning and execution, you can take the help of EMI calculators to ensure the affordability and suitability of the loan you are looking to avail. Remember, atlas it all comes down to your needs and financial goals.
Frequently Asked Questions
- What is the interest rate on a used car loan? Most lenders charge an interest rate of 10 to 15% on used car loans. These rates depend on the car's age, the borrower's credit score, and the lender's terms.
- What is the maximum amount on a pre-owned car loan? 75 to 90% of the car's valuation amount is usually sanctioned by lenders as the amount on a pre-owned car loan.
- How long is the tenure on used car loans? The tenure on used car loans is lower than new car loans, ranging between 12 to 60 months.
- What documents are needed to avail of a used car loan? Identity proof, address proof, and income proof of the borrower, along with the car documents that are the ownership details, RC book, and insurance, are required to avail of a used car loan.
- Is foreclosure/prepayment allowed on used car loans? Yes, foreclosure/prepayment is allowed on used car loans but can include a penalty of 2 to 5% on the outstanding loan amount.
- Is it possible to apply for used car loans online? Many NBFCs and digital lenders allow online applications for used car loans for faster and hassle-free loan processing.
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