With rising car demand, the second-hand car market in India has grown significantly in recent years. Pre-owned, or second-hand cars, are a budget-friendly alternative to new cars.If you’re considering a pre-owned car due to personal or financial reasons but are short on funds, several banks now offer used car loans, making it easier for buyers to finance their purchases.
Features of used car loans
A used car loan functions mostly like a new car loan, although it has its own advantages in terms of loan-to-value ratio, interest rates, and tenure. Let’s take a look at it.
Loan amount and tenure: Most banks finance up to 80-100% of the car’s assessed value, which can make things easy for individuals. A short tenure for repayment usually ranges from 1 to 5 years, or 7 years in some cases, comes with low interest rates, and is more affordable for customers. Loans with a longer tenure have high interest rates applicable to them, which can be burdensome, so you must compare all choices before going for a loan and determine which one you can pay off comfortably.
Eligibility criteria: Usually, applicants must be between the ages of 21 and 65 years. They must have a stable income source, whether they are salaried or self-employed, with 2-3 years of work experience. Further, the credit score of the applicants must be above 700 for better interest rates. A healthy credit score is important to get a cheaper loan with the necessary benefits.
Required documents: To apply for the loan, identity proof and address proof (including Aadhaar, PAN, Passport, Voter ID), and income proof (including salary slips, bank statements, or IT returns for self-employed individuals) are required. Additionally, access to the RC book, insurance papers and PUC certificate is also needed.
Used car loan vs personal loan
If you need to finance a pre-owned car and you’re confused about whether you should go for a used car loan or a personal loan, it is important to be aware of all the terms so you can make a well-informed decision. A used car loan is a secured loan designed specifically for buying a used vehicle, where the car itself is collateral. A personal loan, on the other hand, doesn’t include any collateral and can be used for any purpose, including car purchases.
One of the key differences lies in the interest rates: used car loans offer a low interest rate, typically between 9% and 16% per annum. Personal loans generally come with a higher interest rate, ranging from 10% to 24% per annum.
A used car loan may involve vehicle inspection and documentation related to the car, so this might be a downside for it, as personal loans are often granted with minimal paperwork. Personal loans mainly rely on the applicant’s income and credit score.
Lastly, the loan amount for a used car loan depends on the car’s value and condition, with most banks financing up to 80–100% of the vehicle’s cost. Personal loans are approved based on the applicant’s financial profile and usually don’t require a down payment, which is also a plus point for these loans.