Buying a second-hand car is a great way to own a car without taking a huge financial burden. When buying a second-hand car, you should ensure that you check the car’s condition, registration date and the number of kilometres it has been driven for. You should also check whether spare parts for the car are available in the open market. You should also check a few things before you finalize a second-hand car loan. These include:
The rate of interest
The used car loan rate is probably the biggest factor determining your choice of lender. The rate of interest charged on a second-hand car is typically higher than it is on new cars. This is because the resale value of the used car is much lower – and therefore lenders consider used car loans to be riskier. Used car loan interest rates can vary between 10.50 % per annum to 18 % per annum. This depends on your credit rating, the model and age of the car and your lender of choice. The second-hand car loan interest rate also varies based on the loan to market value ratio. Most banks lend up to 80% to 85% of the car value. NBFCs like Muthoot Fincorp provide a loan for up to 90% of the car’s market value.
The time for approval
Approval time for a second-hand car loan is typically longer than for new car loans. It can take up to a week. The seller and you must agree on an affidavit to transfer the car papers before the loan is approved. Some lenders may ask for an additional asset to be pledged as well – in case the value of the car falls below the loan amount before it is repaid. This is in sharp contrast to new car loans that may take just a day for approval after KYC is completed.
Tenure of the loan
Tenure of a second hand car loan can vary from 12 months to 60 months. You can also prepay the loan earlier, typically at a nominal fee for earlier closure. The maximum tenure available varies based on the age and the condition of the car. If the car requires very high maintenance or if it is older than five years – lenders may be reluctant to provide for a longer repayment tenure. The loan amount would be based on an evaluation of the car by an inspector assigned by the lender, and not just the price you have agreed with the seller.
Make sure that all the documents relating to the car are in order. The lender would check the same before approving your loan application.
Lenders may refuse to finance the purchase of the car is out of insurance coverage. Further, make sure that RC is in the name of the seller. Further, most lenders may not provide a loan if the car is older than 10 years.