Used Car Loan — Get Personal Loan For A Second-Hand Car
Planning to buy a second-hand car? You can now easily get personal loan for availing used cars which will help you get over the financial burden. Read to know!
The market for a second-hand car is steadily growing in India. Until a few years ago, people interested in buying used cars would either go to specialised branches of automakers or to certain designated events held on weekends for such vehicles. But in recent years, a lot of buying and selling has moved online with the advent of websites such as CarDekho and CarTrade. These websites not only list second-hand cars on their platforms but also connect buyers with lenders for pre-owned car loans.Most lenders these days offer loans to purchase second-hand cars in India. But obtaining a loan for second-hand cars is a complicated and drawn-out process. Lenders consider several factors, such as age of the car and whether the model has been discontinued, before approving a loan for a used car. Moreover, lenders often charge a higher interest rate on loan for a used car than on a new car. This pushes many buyers to look for other alternatives.
Here is when personal loans come into play. A personal loan is easy to avail and there is no end-use restriction, which means the borrower can use this to fund the purchase of pre-owned cars. Also, a buyer with a good credit score will manage to get a personal loan approved at more affordable interest rates, compared with used car loan.
Applying For A Second-Hand Car Loan
Once a buyer applies for a loan, the bank appoints an expert for the valuation of the used car. Banks and non-banking finance companies offer up to 80-85% of the total value of the used car for a tenure of one to five years, provided the age of the car and the loan tenure do not exceed 8-10 years. The buyer will have to bear the cost of the down payment and the differential amount.Also, a buyer should opt for a newer car model that is not more than two to three years old as older the car, the harder it is to obtain the funding.
Interest RateThe rate of interest at which lenders approve the loan for the used car depends primarily on the condition of the car. Newer the car, lower is the interest rate. The used car loan interest rates currently start from 7.75% and are as high as 16.00%.
Other factors affecting the interest rate are debt-to-income ratio of the borrower, their income and credit score. The amount the buyer puts for down payment, relationship with the bank, and repayment tenure are factors that also play a role in determining the interest rates.
The DifferenceIt is important to understand the difference between a used-car loan and a personal loan to reach an informed decision on which one to avail.
Down Payment:A lender will provide loan up to only 80-85% of the total car value and the remaining amount has to be borne by the buyer. However, with no end-use restriction on personal loans, a buyer can get the entire value of the car sanctioned.
Collateral:This is the biggest difference between a personal loan and the used car loan. In the case of a personal loan, the borrower need not provide any collateral to the lender. In the case of a used-car loan, the vehicle itself acts as the security that is pledged with the lender until the borrower repays the loan.
Procedure:Getting an approval for a used-car loan is a more difficult compared with a personal loan. Lenders inspect every possible factor about the used car before approving the loan. On the other hand, lenders do not ask a buyer with a sound credit score the purpose for availing of the personal loan.
ConclusionGetting a loan approved for a used car can be a difficult task. Banks would likely inspect and verify the car which may not be easy if the current owner still possesses the car. Also, the final rate of interest offered by the lender may not be that affordable, especially if the car is old and not in a good condition.
In such a case, a personal loan may be an easy and the better option. People with strong credit profiles may even be able to get a personal loan at a lower interest rate than the pre-owned car loan interest rate. This is why consumers should compare the personal loan offers from various lenders and choose a reputed one like IIFL Finance.IIFL Finance follows a fully online process to sanction personal loans to make it convenient for the borrowers. It also provides competitive interest rates, does not have hidden charges, and offers easy repayment options.