Things to Look Out for While Taking a Used Car Loan

Apart from food, medicines and personal care items, this lockdown has proved how essential a car is. With no other mode of transport available, owning a car is a great help if you have to travel for some inevitable reason. Even when the world wasn’t grappling with the coronavirus pandemic, a car was the best alternative to crowded or irregular public transport or to expensive cab rides. But, buying a car without sending your annual budget for a spin is a hard nut to crack. The price of even a hatchback runs into a few lakhs these days. However, if you consider buying a pre-owned car, you will be able to choose from a bigger pool at lower prices. Used car finance options can simplify things further.

Advantages of buying a used car

Many people want to upgrade their cars every few years and they sell their cars after using it only for a few months. Plus, thanks to the easy availability of used car loans, the trend of buying pre-owned cars is on a steady rise. Also, the purchase and sale of used cars is now an organized sector with many big players.

According to the online classifieds platform OLX’s recent estimates, the market size of pre-owned cars is currently 1.3 times the size of the new car market, and is expected to touch $25 billion by 2023. Also, the consulting firm McKinsey indicated that the growth in the used-car segment will make India the 3rd largest market for used cars by 2021. Courtesy the rapid urbanization, increasing incomes of customers and the affordability quotient of used cars, pre-owned vehicles are being preferred more than new cars. And they have plenty of other benefits too:

• Remember that with a little touch-up, used cars can look brand new. And they offer good value for money as well.
• Regardless of the model and the brand, depreciation of a new car is about 10%-20% in the first year itself. So, when you opt for a used car, you are not only getting one at a lower price but also one with a low depreciation value. It means you can almost sell it at the same price you bought it, a few years later.
• Moreover, used cars by different brands will leave you spoilt for choices. Also, because of the sizeable difference in price, you can even think of getting a sedan at the price of a hatchback.

Things to know before going for used car finance

Before applying for the loan, do thorough research about the used car. Judge the vehicle on parameters of fuel economy, performance, safety, and styling. Choose a vehicle according to your needs and not its flamboyance. Always test drive the car and check the car for fake parts and evidence of damage. Here are some other tips:

• When buying a car through a car dealer, ask for service records, insurance, warranties, registration certificates, previous owner’s reference, and accident history, among other information.
• In the excitement of getting the car, don’t sign papers without thoroughly reading them or pay any amount asked for. The dealer may not entertain your complaints once the amount is paid.
• Go for popular models of the car as they will get you better loan deals from lenders compared to offbeat models.
• Now, coming to the used car loan, thanks to technology, the process of applying for a loan has become quick and transparent. If you have a steady source of income, possess the set of required documents (Aadhaar, PAN card, income proof, car valuation report, to name a few), and a good credit score, the loan will be approved in a couple of days.
• Think about what kind of budget you have, whether you can afford a hatchback, a sedan, or an SUV. It will help you decide the loan amount.
• Remember that in case of used car loans, valuation of the car done by the lender will be lower than what you are shelling out to buy it. You can get a loan of up to 90% value of the car as measured by the financial institution.
• The Interest rate depends on many factors like credit history, annual income, and debt-to-income ratio of the buyer, and differs from lender to lender, and from applicant to applicant.
• Despite getting the desired loan amount approval, keep around Rs 50,000-Rs 1 lakh aside for miscellaneous charges like processing and transfer fees and for down payment.
• While you should choose the lender that offers you the best deal, you can also switch the lender midway via a process called refinancing. However, experts suggest you do it only if you have long tenure and you are getting a really good deal that may help you make some substantial savings. This is because your current lender will levy a fine for breaking the contract.
• Note that the car purchased acts as the collateral till the loan is repaid. Also, check for the hypothecation formalities, according to which the lender has the right to seize the car if there is any delay in the payment of EMI or a chance of default.
• Once the loan is repaid, remember to transfer the car to your name along with the No Objection Certificate, by addressing the RTO.

Advantages of taking a used car loan

• It lowers your financial burden as the loan amount is smaller compared to a new car loan
• A variety of EMI plans offered by the lender makes life easier.
• Long tenures of up to five years, and seven years in some cases, give the loan seeker the chance to repay the amount according to his/her monthly repayment capability. Also, lenders offer different modes of repayment options like PDC, NACH, ECS, etc.
• Not just the application part, but also the documentation and verification process is quite easy and simple, and now mostly done online.

A used car can easily be afforded with a used car finance option and it will let you enjoy the comfort a four wheeler brings. It’s important to zero in on the right car and choose a lender that understands your requirements and financial compulsions. Apply for one soon and most likely, after the lockdown, you will be able to drop kids to school quickly, commute comfortably to the office, and visit friends and relatives regularly in your own car.