Even today, purchasing a car is seen as a status symbol in India. But because of the Pandemic the prices of new cars have skyrocketed and the supply chain issues have also not helped solve this problem. Because of this the middle class are not able to afford brand new cars. This has now led to the standardization of the used car industry.
Even though buying a second hand car is not seen as a socially acceptable norm we are here to tell you that buying a used car might be one of the best decisions a person can make because of many factors such as the high repair cost of a new car, the extra depreciation and the lower stress that comes with owning a Second hand car.
To help you with the purchase of your second hand car we here are going to help you on how you can obtain a second hand car loan which will make your purchasing decision much easier and hassle free.
The following are the features of a second hand car loan.
- Now because of the Internet, it has become very easy to apply for second hand car loan online, and it has also become a very hassle-free process which requires minimum documents to be submitted and does not require the consumer to go to various financial institutions.
- Since the value of a second hand car is lower than the value of a Brand-new car. The total loan amount and the value of EMI’s that a person needs to pay every month is lower, which makes it a no brainer choice
- The used car loan interest rate ranges anywhere from 10% to 17% and the loan repayment period goes up to seven years, but it is generally advisable to apply for a loan for a shorter tenure as increasing the loan tenure tends to increase the interest which needs to be paid to the financing institution.
The following are some advantages and disadvantages of a second hand car loan
Advantages
- Second hand car loans are easier to obtain as there are very few documents that are required to be submitted.
- Interest rates on these loans are very flexible.
- Since the value of a second hand car is lower than a brand-new car. The total amount of loan to be repaid to the banks, including the interest rate is low, which makes the monthly EMI lower as compared to purchasing a brand new car.
- If you have a good credit score you can get a lower interest rate on your loans.
Disadvantages
- A good credit score is required to obtain a loan from a recognized financial institution.
- If the second hand car is of an older model, the interest rates might be high.
The following are factors which will help you get the best interest rate on a second hand car loan.
Age of the car
The person buying the second hand car needs to make sure that the car is between three to five years old as getting a car older than five years may increase the interest rate of the loan, which will in turn increase the EMI which he requires to pay every month.
The bank also considers the car as collateral for the loan. If the borrower fails to pay back the loan, the bank is able to sell the car and recover its lost money. Hence the newer the model of the car the more money the bank will be able to recover.
Credit score
The person availing the loan must have a credit score of more than 700 to make sure that he gets the best interest rates available. A high credit score gives Bank an assurance that the loan will be paid on time without any default. If the borrower does end up paying back the loan on time then it is going to improve his credit score and help him get better interest rates the next time he wants a loan.
Down payment
The higher the down payment while purchasing the car, the lower will be the interest rate on the loan.
Income
The steadier the income of the person obtaining the loan, the lower will be the interest rate on the loan as the bank is able to see how much the person is generating each month, and the bank is able to assess. If there are going to be any defaults.
Long term loans
The loans for purchasing used cars are available up to a period of seven years. It is advisable if a person is able to draw out a longer loan from the bank as long loans have lower interest rate as compared to short term loans.
Conclusion
Hence, we can say that it is advisable for a person to get a second hand car loan if the car is not more than three to five years old, as it will increase the interest rate of the loan if the car is older and the person also needs to do his due diligence while buying a used car to see that he purchases a car from a reputed dealer and the car is in a good condition and he also needs to ensure that all the documents of the used car are also present such as proper registration and licenses. He also needs to ensure that the previous owner has paid all the required taxes.
