If you are getting a car for the first time, buying a used car may be the best decision until you gain enough experience. With the increasing prices of new cars, buying a car from your pocket puts a burden on your finances. In such cases, you can apply for a second-hand car loan to manage your finances without redeeming your savings.
The best part about a second-hand car loan is that you can secure the entire value of your vehicle as a loan. However, it is worth noting that your loan amount depends on factors, such as the condition of the car, your income, credit score, and current financial obligations. With affordable used car loan interest rates and flexible loan tenure, making timely repayments is easy.
Here are the crucial factors to consider before getting a second-hand car loan:
- Credit score
Your credit score is the second crucial factor in your loan application after your income. Based on the score you have maintained, your lender determines your creditworthiness. Before applying for a loan, your lender checks your credit score to establish your eligibility. You will need to maintain a credit score of at least 750 to apply for a second-hand car loan.
Although you can secure a loan with a low credit score, you will have to bear a higher interest rate. Therefore, if you wish to avail yourself of a lower interest rate, you will need to maintain a healthy credit score.
- Repayment tenure
Your loan tenure has a direct impact on your EMI amount. If you choose a longer loan tenure, your EMI may decrease, but you will be paying higher interest in the long run. The total cost of your loan will increase with a longer loan tenure. But, if you choose a shorter loan tenure, your EMI amount will increase, but the interest rate will significantly drop. So, before applying for a used car loan, it is better to assess your needs, and if you have the budget, choose a shorter loan tenure.
- Down payment
Not all lenders offer the entire market value of your preferred used car as a loan. Some lenders offer up to 80% of its value as a loan. It means that if your used car costs Rs. 100,000/-, you will have to pay the remaining Rs. 20,000/- as a down payment. Although you can get a higher loan amount, it would be wise to pay at least 40% of the loan amount towards the down payment. The higher your down payment, the lower will your preferred loan amount, and a lower loan always fetches a lower used car loan interest rate. Before applying for a used car loan, consider the down payment.
- Second-hand car loan EMI calculator
All lenders have an online second-hand car loan EMI calculator at borrowers’ disposal. The benefit of the EMI calculator is that you can easily assess your needs and affordability. There are generally three main components in an EMI calculator – principal loan amount, interest rate, and loan tenure. You can change their values to determine a suitable EMI based on your needs.
Yes, it is true. You can add a co-signer to your second-hand car loan application to reduce the burden from your pocket. If you have a low or bad credit score, you can invite a co-signer with an excellent credit score to your loan application. Adding a co-signer with a healthy credit score enables you to secure a lower used car loan interest rate. It best suits applicants who are applying for a second-hand car loan for the first time.
- Late payment
At times, you get caught up with your busy schedule that you simply forget to pay your EMI, or you run out of funds to afford repayment. In such cases, your lender will levy a late payment fee. Therefore, it is crucial to make timely repayments to avoid late payment penalties. Besides that, missing your payments can also hurt your credit score to an extent you will not be able to secure loans in the future.
- Additional fees
The used car loan interest rate is the only cost associated with a second-hand car loan. You will have to bear other fees, such as dealership fees, documentation fees, sales tax, etc. The dealership may advise you to include such expenses in your loan, but make sure to avoid such advice. Adding such fees will increase your loan amount and interest rate. Your objective should be to reduce as much cost as you can to your loan.