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24 Aug
  • Editorial Team
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Everyone wants to drive his or her dream car around but most don’t have the budget to fulfil this ambition. However, if people are willing to look at options beyond the expensive brand new cars, there are ways to own a nice vehicle. Wondering how?

Consider the ever-expanding market of pre-owned cars for example. Over the past decade, its market has grown so significantly that today it is considered to be a competition for the new car market. The reason lies in a pre-owned car’s affordability quotient. The moment a new car is sold and leaves the showroom, its price goes down. Irrespective of the model and brand, depreciation of a new car is about 10%-20% in the first year itself whereas second-hand cars are already past the maximum depreciation stage. This means you pay less for the same car you have been dreaming to buy one day.

Another reason the second-hand market has grown is the quality of cars. If you think ‘used car’ means a car that’s in bad shape, you might be highly mistaken. The new age car owners prefer to upgrade their automotives every few years and thus, sell their brand new cars after using it only for a few months. Moreover, when reputed car dealers do a little touch-up, the used car returns to its former glory.

Despite the drop in cost, the price of the car can be around a few lakh rupees. When savings are little but buying a car is essential, you can opt for a used car loan, which several financial institutions companies are ready to provide. Because of the technology, the entire process of used car loan application and approval has become very quick and transparent.

Advantages of taking a Used Car Loan

  1. Easy and customized Instalments: In this type of loan, you can choose a repayment plan according to your budget. It’s important to note that EMIs can be reduced by paying a bigger down payment amount. Also, EMIs will be lower if the loan term is spread out over a longer tenure and will be steeper if you wish to pay them in a shorter duration of time.

  2. Tenure of repayment: Usually, lenders offer repayment tenures that ranges from one to five years, but now some lenders are willing to push it up to seven years. As mentioned above, tenure and EMIs are inter-related and so, the decision must be made according to one’s monthly repayment capacity.

  3. Owning popular models at an affordable price: It goes without saying that the biggest benefit of used-car loan is that you will be driving the same car you wished for sooner than planned. Simply the fact that car was pre-owned, reduces its price by 10-20% even if it looks nothing different from a brand-new vehicle.. Also, go for popular models of car with age less than four-five years, as they will get you a better loan deal from lenders compared to offbeat models as there are hardly any takers for the latter.

  4. Easy and simple documentation: The documentation process is quite easy and simple and now mostly done online, so your loan can be disbursed quickly.

  5. Car as collateral: In case of a car loan, the vehicle purchased itself becomes the collateral. So you don’t have to put anything else on the line to get the loan approved.

Here are some points to consider before taking a used car loan/pre-owned car loan 

  1. Check your credit score: Maintaining a good credit score is really important for a loan application. You must check your score on any finance related website before approaching a lender. It will indicate that you are comfortably placed to repay the loan on time.  

  2. Look for best loan terms: You must check the loan eligibility, lender, interest rates, tenure, and repayment options. The loan amount depends on your age, income, and employment type. Lenders usually finance 80-90% of the car's market value. One should always opt for the loan which suits his requirements. 

  3. Check the Hypothecation formalities: When the loan is taken to buy a car, your car is hypothecated to the financial institution company or any other lender from where the loan has been taken. They have the right to seize the car if there is any delay in the payment of EMI. So make sure all the hypothecation terms before availing the loan.

  4. Choose the right lender: Different lenders have their own loan charges and eligibility criteria. Before opting for anyone, a comparison should be done online to know if you meet their eligibility criteria with respect to income, employment and repaying capacity.

  5. Plan your budget accordingly: You must plan your budget according to your income. Remember that in case of loans, the valuation of the car done by the financial institution will be lower than what you are shelling out to buy it. The interest rate depends on many factors like the category of car, manufacturing year, the condition of the car etc. Keep around Rs 30,000-50,000 aside for miscellaneous charges like processing and transfer fees in addition to the one or two lakhs for the down payment.  

Eligibility and Document checklist for your loan application


 

Eligibility:

  • You must prove that you are an Indian resident above 18 years of age with regular income.

  • If you are a salaried employee, you must have spent a minimum of 6 months at your current job.

  • If you are a self-employed individual, then you should have your company registered and it should be at least 1 year old.

  • A good credit history is another must.

Basically, you have to meet the age, professional background and income criteria of the lenders as they prefer applicants who have a lower debt-to-income ratio. 

Documentation:

  • Keep your Aadhaar, PAN card, address proof, age proof, car valuation report, registration and insurance papers of the cars, etc. ready.

  • If you are a salaried person, you need to show your salary slips and bank statements.

  • If you have your own business, you need to show registrations papers, balance sheets of the company along with KYC details of partners and board members.

  • Keep passport size photographs handy.

A used car can be afforded by most Indians these days. The reduced price, which can be paid in easy instalments, and the comfort of a car, make it a win-win situation for those who are getting tired of travelling in crowded public transport and can’t wait to take out their own four-wheeler.

Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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