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Car buyers in India traditionally prefer buying new cars; a used car is usually bought while upgrading from a two-wheeler or if one requires an extra set of wheels. Earlier most people purchased used cars from known sources – friends or relatives. Times have changed, and you would be surprised, but this option has become extremely popular. It allows buyers to purchase a more superior car with a majority of its life left and pay far lesser than a equivalent new car. This is because the initial depreciation on cars is the highest, post which the prices don’t fall as much.
With car manufacturers like Maruti Suzuki and Mahindra, getting into the used car finance space, there has been an increase in credibility and trust in this market. A lot more people now purchase these certified used cars, the pre-owned car market is expected to grow at 15%. This has also resulted in an increase of used car loans and financing options.
Although getting a used car loan has become easier, banks usually do not offer more than 70 to 80 per cent of the car’s actual market value. The interest rates for these are also higher in comparison to new car loans and the loan tenure is usually shorter.
Choosing the Right Used Car
Start by making sure that you are choosing the right car. When it comes to taking a used car loan, it’s essential to remember that not all used cars are eligible for financing. The car’s age should be less than 8 years old for eligibility. In addition, the documents and the condition of the car should be thoroughly checked before closing the deal.
Ideally one should choose a popular car as these are available in larger numbers and easier to get financed. Brands such as Honda, Toyota and Maruti make for good used cars. Try and avoid a car which has run a lot. The newer the car, the lower will be the maintenance and operational expenses. Also if a car is more than 4 years old, its best to buy it from a certified used car dealer, since they conduct thorough technical checkups and may even provide a warranty and a few free services or check-ups.
Search for a car which is still within the manufacturer’s warranty. This way, you will save on certain unforeseen expenses and technical faults if any, will be taken care of by the manufacturer. Any used car, which still within the manufacturer’s warranty will cost more in comparison to an out of warranty car, but the within warranty is always a safer bet.
During purchase, it’s very important to take a long test drive, and ensure that it is mechanically sound. Check all electrical bits and functions, features, etc. You could also request a trusted mechanic or an auto-enthusiast friend to assist you while inspecting the car.
Choosing the Right Loan
After deciding on the car of your liking, it’s time to choose the right loan. Scout the market, and compare quotes from both banks and Financial Institutions. Try and shop for the car and the loan separately, that way you will have more options to evaluate.
The down payment is a crucial aspect, decide on this amount based on your current financial health and future income flows. Try to pay as high an amount as you can comfortably pay. The balance amount or remaining amount will then have to be paid in regular monthly EMIs or installments.
Since you are applying for a used car loan, try and settle for the shortest possible loan term. This will help you in repaying the loan faster and will also ensure that you pay a lower amount of overall interest. Since the rate of interest is slightly on the higher side, a shorter tenure and lower loan amount helps.
Have patience and please do keep in mind that a used car loans take a longer approval time, in compression to new car loans. This is mainly due to a stricter underwriting procedure and physical inspection of the car being purchased.
Several banks and financial institutions have special offers with low monthly EMI or installment amounts. Avoid opting for these, instead try and get a lower rate of interest instead. This will automatically reduce the EMI or installment amount. You can also try and seek a rebate (up to 100%) on the processing fees. Further, if you have a satisfactory credit history, the financial institution may even provide you with an additional discount or rebate.
Documentation Required
The loan application process is quite simple, straightforward, and it requires minimal documentation, reputed Financial Institutions like Hero FinCorp follow hassle free and transparent processes. The documentation for these involves a few photographs, address proof, identity proof, and income proof, this will include salary slips and ITR returns. In addition, you would also require the cars documents (such as registration certificate and insurance papers) for adding the hypothecation and for record keeping.
As you can see from above, the process of getting a used car loan is extremely simple and easy. Whenever you decide to purchase a used car, scout the market for the car first and then seek financing. Keep the above mentioned points in mind and try to get the best possible deal.
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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