Understanding the Concept of Used Car Financing | Expert Tips

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Why used cars popular these days?

• Owning a pre-owned car has become more widespread these days with newer advancements in car making, enabling them to run, look, drive and last longer than they used to earlier.
• Second-hand or pre-owned car loans are more affordable in terms of finances, and more car buyers are opting for pre-owned cars lately.Benefits and the quantum of loans usually depend on the lending institution, like a bank or an NBFC. Car buyers can find loans approved for pre-owned cars with competitive interest rates and flexible tenures.
• There are several factors you must keep in mind before planning to invest in a second-hand car. From knowing the vehicle well to learning if all documents presented are reliable, there are many steps that must be considered before going for a pre-owned car.
• Most often, loans on pre-owned cars are flexible and easy to avail.

Investing in a pre-owned car is a smarter choice today

With all the verification and understanding of the vehicle, investing in a used car over a new one makes more sense. You can always buy a better variant at the same price as a new one if you buy a pre-owned one.

Despite having a smaller budget, becoming a car owner is now easy if you plan and invest in a used car. Some of the many benefits of a used car loan are given below:

• The application and the rate of approval are quite easy.
• The repayment tenure will be less as the loan amount is less – this helps you save a lot on interest rates.
• You might, more often than not, get 90% or even 100% of the value of the car.
• Buying a pre-owned car will require you to take a smaller amount as a loan, saving a lot of money for you in the long run.

Several banks and NBFCs are flooded across the country to give loans for new and used cars. Chola passenger vehicle loans are a great option if you plan to buy a new car. Apps like Gaadi Bazaar also help consumers buy used and pre-owned certified and verified cars to avoid unwanted discrepancies.

List of documents required while opting for a pre-owned car loan

• Identity proof of the applicant
• Recent photographs
• Address proof of the applicant
• Proforma Invoice of the vehicle (if applicable)
• Sale agreement from the seller or the authorized car dealer
• Bank statements (past 6 months at least)
• Income proof (form 16 / ITR for past year at least)
• Car valuation report
• RC copy of the vehicle
• Insurance copy of the vehicle

What are the features of a car loan?

Understanding how a car loan works can help you choose a suitable car loan. Here are a few important features of a car loan you need to keep in mind:

Amount of the car loan:

Banks offer a maximum used car loan of up to 85-100%. If you pay a high down payment on your chosen car, then the cost of your car loan will be less.

Tenure of the loan:

You can opt for a short or long car loan tenure ranging from 1 to 7 years. A short loan tenure will ensure you repay your loan in a short period but will have high EMIs, whereas a long term will have low EMIs, but you will end up paying more interest payments.

Interest rate of the loan:

To repay your car loan, you have to pay interest on the principal loan amount every month over the chosen loan tenure. The interest rate of a car loan will vary depending on the bank you choose. Visit a third-party website to compare various car loan offers across the top banks and choose one that offers the lowest interest rate.

Car loan EMI:

Car loan is repaid to the bank in Equated Monthly Instalments (EMIs). To get instant and accurate results of EMI calculation, use the online car loan EMI calculator that is available for free on your bank website or a reliable third-party website. The tool is easy to use - all you have to do is enter the loan amount, interest rate, loan tenure, and processing fee into the calculator and click the 'Calculate' button. You will get a periodic loan repayment schedule in the form of an amortisation table. The table will include your EMIs, outstanding due after each EMI payment, interest payments, etc. EMI calculation can help you determine how much your car loan will cost you monthly.

Processing fee:

Banks charge a small percentage of the principal loan amount called the processing fee to process your car loan. The processing fee will be deducted when you disburse the loan amount to your bank account. Some banks waive the processing fee as a special offer.

Prepayment/Pre-closure:

Banks allow borrowers to prepay a part of the car loan after 12 EMI payments. For making this prepayment, you will have to pay a penalty fee, which is a percentage of the prepayment amount called the prepayment fee. You can also pay the loan amount in full before the end of its loan tenure, called pre-closure. Banks charge a pr-closure fee, a percentage of the remaining principal Amount you pay to pre-close the loan. Pre-closing a car loan is not advisable, as making timely EMI payments can help to improve your credit score.

Foreclosure:

As the car acts as collateral in a car loan, if you were to default on your car loan, your car would be repossessed by the bank and put up for auction to compensate for the outstanding dues. This procedure is called car loan foreclosure.

Types of car loans:

Banks offer three types of car loans - new car loans, used car loans, and loans against cars. As the names suggest, new car loans can be used to purchase a new car, whereas a used car loan can be used to purchase a used or pre-owned car. A loan against a car is where you can pledge your old car to obtain a loan from the bank to purchase a new or second-hand car.

Conclusion

In this blog, we have discussed the used car market in India and how it has taken over the hearts of Indian car enthusiasts. We have also provided a few tips and tricks to keep in mind while opting to buy a pre-owned car. You can also help yourself with second-hand cars' various benefits and features and their value in the used car market.