Everything You Should Know About Used Car Loans

A used car, often known as a pre-owned car, is one that is being sold for the second or third time. India’s secondhand automobile sector is expanding. We can buy a used car with help of used car loans. According to sources, the ratio of new to used automobiles is 1:2.2, meaning that for every 100 new cars sold, 220 used/pre-owned cars are available for purchase. The used car market is predicted to have a volume of 4 million units per year, which is 50% higher than new car sales. 

Reasons for the Used Car Market’s Growth

Reducing ownership periods:

The duration of car ownership is decreasing as personal income rises. Previously, ownership spans were around 7-8 years; however, they are currently around 4-5 years. As a result, the used car market is seeing an increase in sales.

Affordability of used car:

An automobile that has been driven for 2-3 years can be had for 60-70 percent of the price of a new car on the road. Better car manufacturing technology ensures that the car’s quality does not deteriorate even after 2-3 years of use. As a result, buying a used car can help you get more bang for your buck.

Platforms for buying and selling secondhand cars are more readily available:

There are many choices for trading used automobiles that provide added benefits such as car maintenance, quality assurance, warranty, finance, and other added attractions such as RC book transfer, etc., making the experience of buying a used car much easier.

Changed perceptions:

With better players and increased market openness, purchasing a used automobile is no longer deemed inferior.

Having multiple vehicles in the household:

With more people entering the workforce and public transportation in many areas around the country still in its infancy, buying two automobiles is becoming the standard in many homes. As a second car, people choose to buy old cars.

Increased car ownership as a result of taxi services:

We are familiar with both Ola and Uber. As more drivers become entrepreneurs, there is a higher need for automobiles, and secondhand cars are frequently selected owing to affordability.

Finance is more readily available:

For used cars, there are more convenient financing choices.

Everything you need to know about financing used vehicles

Types of car financed:

Financing is available for many types of used vehicles. When it comes to imported or very old autos, though, lenders have reservations. On a case-by-case basis, these are approved.

Availability of finance:

There are numerous financing alternatives available for secondhand cars. Individuals wishing to acquire used automobiles can turn to banks and other non-banking financial institutions for assistance.

Valuation of car:

This is the most difficult aspect of financing a secondhand vehicle. A brand-new car has a clearly defined price, however, assessing the worth of a used car is more difficult. The number of kilometers driven, the user profile (personal or commercial), the location of use (cars from flood-prone areas may not be chosen), accidents or changes made to the vehicle, and a clear title of the automobile, among other factors, must all be considered.

Loan to value for used cars:

Lenders expect a down payment of a particular percentage of the projected value of the used car. Lenders typically use a loan-to-value ratio of 65-80 percent. Certain lenders, on the other hand, will lend up to 95% of the used car’s estimated worth.

The interest rate of a used car:

Because of the reasons stated above, buying a used car has risks for both the customer and the lender. As a result, used car loan interest rates are slightly higher than new vehicle loan interest rates. Used auto loan rates currently range from 11 to 16 percent, depending on a variety of criteria. New car loan rates, on the other hand, begin at 7.75 percent. A processing fee is also levied, which ranges from 1-3 percent of the car’s worth.

Used car loan tenure:

Determining the length of a used automobile loan might be difficult as well. It’s possible that the vehicle has been in service for a while. Used car loans terms are also determined by the vehicle’s quality. Due to the subjective nature of these difficulties, most banks and financial institutions have a limit on the length of time that used car loans can be held.

Some lenders limit used car tenures to a set number of years from the date of first registration or only lend on used automobiles that have been used for less than a year. Used car loans are often shorter in duration than new automobile loans, which can last up to seven years. Furthermore, because used car loan interest rates are higher than new car loan interest rates, it may make sense for a person to pay off the loan as quickly as possible to decrease their overall interest load.

Credit Score

Used car loans are secured by an asset, and lenders charge a higher interest rate to compensate for the risk associated with lending for these automobiles. As a result, the credit scores of the loan applicant are given little weight. As a result, those with bad credit or no credit may find it easier to obtain used automobile loans. Individuals with a strong credit score, on the other hand, may receive bonus points and be able to negotiate a better interest rate.

Loan approval process

In comparison to a new car, the loan approval process for a used car may take a little longer. When you use related financing companies to get money, this process can be sped up. For example, if you buy a car from Mahindra First Choice and finance it through their in-house finance company, Mahindra Finance, the procedure may be speedier because they are involved in the appraisal and certification of the vehicle. However, if you want to buy a used automobile from an unorganized market dealer, the lender may need more time to conduct due diligence before authorizing the loan, resulting in a longer processing period. Before signing the vehicle loan agreement read it carefully.

Checks before buying a used car

When purchasing a used automobile, we recommend purchasing from a reputable dealer that can guarantee the vehicle’s quality and provide you with a warranty. You should also conduct your own due diligence on the automobile rather than relying solely on the dealer.

Conclusion

Increased financing alternatives make it easier for people to buy used cars at a lesser price. However, like with any other loan, we would want to emphasize the importance of being responsible for your credit. Whether you’re buying a new or used car, always borrow as much as you can afford and keep up with your payments.