Buying a car today is still a dream for most people in this country. This dream has now become a far reality as the prices of cars continue to rise and the quality of new cars is on a downfall. This ironically makes it very difficult for middle class families to purchase new cars. This has now led to Standardization of the used car market.
Even though buying a used 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 used car.
To help you with the purchase of your used car we here are going to help you on how you can obtain a used car loan which will make your purchasing decision much easier and hassle free.
The following are the features of a used car loan.
1. Now because of the Internet, it has become very easy to apply for used 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.
2. Since the value of a used 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
3. 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 the used car loan eligibility criteria-
One should be an Indian citizen with a minimum age of 18 years and the maximum age of 60 years for salaried individuals and 65 years for self-employed, by the end of the loan tenure.
2. Occupation Status
The applicant should have been in a stable job for at least 1 year.
In the case of self-employed, the applicant should have been in the existing business for at least 1 year.
3. Loan Tenure
The loan is available for a minimum tenure of 1 year and the maximum tenure of 5 years.
4. Loan amount
- A loan for a used car is available for a minimum amount of Rs 50,000 to the maximum amount of Rs 50 lakhs.
- The maximum LTV on a used car loan is 90%.
- Top-up loan of up to a maximum LTV of 175% of the used car loan value.
- The LTV ratio or maximum loan amount depends upon various factors such as the applicant’s profile and car’s condition.
5. Monthly income
There is no such predefined monthly income.
The following are factors which will help you get the best interest rate on a used car loan.
1. Age of the car
The person buying the used 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.
2. 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.
3. Down payment
The higher the down payment while purchasing the car, the lower will be the interest rate on the loan.
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.
5. 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.
Hence, we can say that it is advisable for a person to get a used 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.
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