What is a used car loan and how do I apply for one? – Forbes | Car Plazas
Cars are definitely among those things that can be categorized as both a necessity and a luxury. Buying a brand new car, or even a used one, can take up a lot of your budget and can take years to save up for. This is where credit comes into play.
You have two main choices when it comes to getting a car loan in India. The first is the regular car loan and the second is a used car loan. If you’re looking for the latter, here’s the basics on used car loans and how to apply for one.
Basics of a used car loan
A used car loan, also known as a used car loan, is a type of loan that aims to help a person get a good used car. This involves monthly payments rather than full cash payments, which is a slightly more budget-friendly way of copying a vehicle.
However, a loan for used cars in India is subject to lower loan amounts. However, remember that this is not a bad thing. Unlike other loans that come with high-quality assets, used car models are cheaper than new ones. This means you can expect lower monthly payments in the long run.
Used car loan vs. new car loan
If you’re new to credit, the different types of credit can be confusing at first. For example, let’s talk about a used car loan and a new car loan.
Well, the main difference between the two is the type of car or vehicle you can get. A used car loan comes with a used car, while a new car loan comes with a brand new model. The former also comes with a smaller amount of money. This makes it a good choice for those who want a car but still don’t want to splurge on a monthly basis. The latter, on the other hand, suit those with a higher financial capacity.
Used car loan vs personal loan
Both a used car loan and a personal loan can be used to finance a car. However, a personal loan has a more comprehensive approach to borrowers. While the former is strictly limited to buying a used car, the latter can be used for any type of personal use, hence the name. You can apply for it when you need money for investments, personal expenses and preferences.
The key point is that it can be difficult to apply for a personal loan if your main goal is to have a car. If that’s the case, then it’s definitely more convenient to stick with a used car loan.
How does a used car loan work?
The process of a used car loan starts with a financial institution. This can be either an informal lender or a corporate bank.
The institution then evaluates your application by assessing the specific secondhand model you want, your budget, current source of income, and other financial information. After that, expect them to create a financial plan consisting of interest rates and required monthly payments to name a few.
If you agree to the terms, you will receive the loan money to buy your car. Your only responsibility after that is to keep up with the monthly payments.
A used car loan doesn’t really deviate too far from other types of loans. It works the same as there are elements such as loan amount, monthly payments, interest rates, among others.
Specifications of a used car loan in India
First, remember that the specifications of a used car loan in India vary from bank to bank.
However, for reference, you should expect interest rates between 7.50% and 15.50%. It’s unusual for interest rates to be higher, but it’s not entirely impossible, especially if you’re looking for a high-end financial institution.
As for the loan period, the maximum duration can be up to seven years or 84 months. This is a relatively new rule in credit, so limit your expectations to just 72 months. There are also banks that allow repayments of more than seven years. It will all boil down to the terms of a financial institution regarding used car loans in India.
Pros and cons of a used car loan
A used car loan might seem like the perfect choice, but remember that it also has its fair share of pros and cons.
Here is a list of some of the benefits you can get when you opt for a used car loan:
- Longer repayment period
- Lower monthly payments
- Lower insurance costs (due to used car condition)
The disadvantages, on the other hand, include the following:
- Relatively higher interest rates
- High deposit required
- Faulty used cars can do more harm than good to your wallet
To ensure you only get the benefits of the loan, invest time in choosing the right vehicle, the right financial institution, and the general terms and conditions you will be working with. You may also need to consider working with financial advisors if you have the budget.
How to apply for a used car loan in India
Applying for a used car loan in India is actually easy. Here are the steps you need to follow:
- Visit the bank you want to work with. Make sure you do your research on the best possible financial institution for your needs before visiting a branch.
- Provide the required documentation, including the duly completed application form. You will receive the application form from the bank itself as soon as you visit them. Some also offer a downloadable version on their website for your convenience.
- Wait for the bank clerk to assess your eligibility and needs. This usually doesn’t take long as long as you are confident that you have submitted the requirements for the loan.
- Meet with the accountant to discuss the terms of your used car loan. This is the final step in which the accountant(s) will discuss with you the monthly repayments required, interest rates, terms and preferences.
Make sure you listen to each term provided in the last step to avoid agreeing to inappropriate credit terms.
Things that affect a used car loan
Getting a used car loan is easy only if you are qualified. Below are some things you should pay attention to before applying for said loan:
- credit score
- Background as a borrower (if it is not the first time)
- source of income
- employment history
Expect it will be difficult if you have an undesirable background as a borrower, employee and preferences. Above all, creditworthiness will play a major role.
Requirements for a used car loan in India
Since the required documents vary depending on the financial institution you are dealing with, we will focus on guiding you through the requirements for a used car loan in India. See the following list:
- Must be between 21 and 65 years old; At least 25 for self-employed)
- Monthly income should be INR 15,000 or more; INR 1.5 lakh annually if you are self-employed
- The applicant must have been in their current position for at least one year; In the case of self-employment, the trade must have existed for at least 3 years
These are the general qualifications for Indian used car loan applicants. More may be added depending on the bank.
A used car loan is a form of financing reserved for used cars. By applying, you will receive a used, but still functional vehicle at a significantly lower price. This is especially true when compared to brand new models.
However, keep in mind that a used car loan, like most loans, works through monthly payments and interest. This means that this does not come with a specific price and will still vary depending on the financial institution you are working with.
Getting a used car loan in India does not come with high requirements. As long as you are 21 years of age and older and can meet the required income for the model you are looking at, you are good to go. You may also want to create a checklist to ensure you get a used car loan hassle-free.