Know the rules of used car loan

Undeniably, the excitement to drive your own car is unmatchable. And, if you really look, with the kind of quality and service attached with used cars, it doesn’t matter much, whether you are driving a new car or a pre-owned one. However, the thought of buying will also lead to the worry of arranging for funds which will advertently lead to the thought of taking a car loan. Well, of recently, there has been an influx of used cars in the automobile market which is predominantly attributed to the buying habit among car owners. These days car owners prefer to upgrade their garage every two to three years which could be because of increase in purchasing power, and new variants offered by automobile manufacturers. The best part about this new trend is the cars that come into the used car market retain the newness in them. And, it is to be noted that the pre-owned car’s market has come a long way from how it was earlier. Not these cars have authorized dealers, they are serviced to perfection with all quality checks, along with getting entitled to warranty, clear documentation, and financial assistance too. And, all these with a price that is much lesser than a brand new car.

By now, if you have made up your mind to buy a used car, here we have another good news – you can avail used car loan. Yes, just like you can get a car loan for a new car, similarly, you can also get a loan for used cars. Here are few rules you must know when you apply used car loan. 271

1. The application process for used car loan–Car loan or used car loan is similar to any other loan such as personal loan, home loan etc. So, even the process and factors remain quite similar. For instance, before you apply used car loan, you must be aware of the loan eligibility criteria, mandatory documents, types of car loans, the minimum amount of down payment, your repayment capacity, factors for loan rejection, and the like. Being aware of this information and adhering to it will smoothen up your used car loan application process.

2. Type of loans –Your loan and the interest rate will be computed depending upon the type of car loan you choose. Generally, there are four types of loan available for used cars. First, secured loans that require a guarantor or collateral. Second, unsecured loans that do not require a guarantor or collateral. Third, pre-computed loans where the interest and principal payments are calculated in advance. And, fourth is the simple interest loans where the interest rate is calculated based on the outstanding amount. It is recommended that you get a clear understanding from the lender about each type of loan and accordingly opt for one that will best suit your need.

3. Down payment – Generally, car dealers and loan lenders prefer that you make a down payment of at least 10-20% of the total amount. It is also a deciding factor of how many loans you must seek. In simple words, if you pay a high down payment, you will need to take less loan, and less loan means less EMIs and less interest rate. Similarly, if your down payment amount is less, you will need to take more loan, meaning more EMIs and more interest rate.

4. Used car loan interest–Alike other loans, car loan comes with a certain amount of interest rate. This rate of interest compounds to give you the amount of loan to be repaid. Having said so, you must keep in mind that interest rate for used car loan could be slightly higher compared to the interest rate for the new car loan.

5. Age of the car –In most cases, lenders prefer to approve a loan for a car that is lesser than five years. So, you must be mindful of picking a car that falls within this preferred age.

6. Used car loan tenure – The tenure of a used car loan is determined by the loan amount and age of the car. Generally, the age of the car and the loan tenure should fall within eight years. For instance, if the car is four years old then the loan tenure has to be within four years. Similarly, if the age of the car is five years then the loan tenure has to be within three years. But again, you must remember that lenders prefer to give loan for cars lesser than five years old.

So, pay heed to the above-mentioned rules and do a thorough review of all the terms and conditions before you apply used car loan.