Lately, the used car market has witnessed a remarkable surge in demand, especially after the pandemic. One of the primary reasons has been that these cars are much more affordable than their brand-new counterparts. Given their easy availability and good drivability with years of useful life remaining, these cars can be one of the best vehicles to purchase. Today, it is also easy to receive financial backing for the purchase of your desired used car. Funding options like second hand car loans can be availed against the fulfillment of simple eligibility requirements and minimal paperwork.
Reputed financial institutions bring these used car loans with interesting features favorable for the borrower. As they are secured in nature, the interest rate levied on these loans is affordable too, which means you can repay the advance in easy EMIs. Before availing of a used car loan, it can be wise to access funding if you follow a set of instructions that help organize your application. Below given are some of them that you can follow.
Check Your Credit Score
A credit score is one of the mandatory eligibility requirements that borrowers of unsecured loans must meet. But since a used car loan is a secured advance, the requirement is not mandatory. Nevertheless, one cannot ignore the importance of this score irrespective of whether it is a mandatory requirement or not.
A credit score is a 3-digit number that credit bureaus assign to every individual with a credit history. It reflects the past credit behavior of individuals and allows lenders to gauge their creditworthiness and assess the risk involved in lending. A credit score of 700 is ideally required for borrowers to establish their creditworthiness. It is thus important that you check your credit score before applying for the advance so that you can work on your credit history and help improve it for improved chances of easy loan approval.
Select a Car Brand and Model of Your Choice
Before availing of a second-hand car loan, you must make sure to select a suitable car model from your desired brand to purchase. Given that these loans are available for used car makes and models, you can choose a car model of your liking irrespective of whether it is a generic car, an SUV, or a luxury vehicle.
However, when choosing a car model, you must make sure that the financing being availed is easily repayable as per your budget. So, consider your income and financial stability before deciding on the used car model to purchase.
Find Out the Available Lending Institutions in the Market
You must also be aware of the available financial institutions that provide used car loans so as to be able to compare the available offers and decide on the most favorable borrowing option. You can go for in-depth research about available lenders online.
When finding suitable lenders to choose from, you can consider the features they offer and choose the loan option that is the most favorable for you. For instance, you can check out features like the loan amount available, tenure flexibility, repayment options, interest rate applicable, loan management system, LTV provided by the lender, etc.
Complete Car Valuation Before Proceeding to Apply
Once you have narrowed down your search for suitable lenders and selected the used car model to purchase, it is ideal to first complete the vehicle’s valuation. It shall allow you to gauge the loan amount you would need and help identify any pre-existing damage on the car which can impact its usability in the long term.
Doing so will also reduce the overall cost of the car that you would need to pay as the cost involved in damaged components, if any, shall be deduced to arrive at a suitable valuation.
Decide on Your Required Loan Amount
Next, you can proceed to decide a suitable loan amount that you would need to avail for completing a used car purchase and ownership. With reputed lending institutions, financing of up to Rs.50 Lakh is usually available as second hand car loan.
When deciding on the loan amount, is essential to understand the working of a used car loan. Instead of the total cost of the car arrived at that you need to pay to your seller, lenders offer only a part of it based on the LTV or loan to value ratio that they decide.
LTV is determined as a percentage of the asset’s current market value that the lender is ready to extend as used car financing. For used car loans, it can go up to 90% with some best lenders. It caps the total loan availability for each borrower, and the remaining amount needs to be met as a down payment by them.
You must know the LTV set by your selected lender to better decide on the loan amount. Count in your affordability for the advance before proceeding. You can use a Used car loan EMI calculator to do so.
Compare Interest Rates from Various Lenders
To finally arrive at the best lender offering favorable terms on your used car loan, make sure that you compare the rates of interest levied on available loan offers as they determined the overall affordability of your advance. You must also make sure to check other rates and charges that the loan attracts to measure the total cost of the loan that you would need to meet by the tenure’s end when borrowing the advance.
Choose a Suitable Tenure for Repayment
Suitable repayment tenure selection is equally important to make the right financing decision as any other factor involved. A long tenure brings down the EMIs payable while increasing the total interest payable by you.
In comparison, while a shorter tenure can increase the immediate liability as EMIs payable, it improves your overall loan affordability due to reduced interest charges for the tenure involved.
Once you have gone through all these crucial steps, you need to arrange a few important documents to produce to your lender. They include the vehicle’s RC, insurance certificate, NOC from the previous seller or lender, if any, and PUC certificate, along with income and KYC documents. With these documents at your disposal, you can proceed to apply for your second hand car loan.