The pre-owned (used or second-hand) car market is seeing a lot of boom these days. Most car companies have their own pre-owned divisions, and many financial institutions are offering car loan At attractive rates. While some non-banking financial companies (NBFCs) offer zero down-payment plans, it is important to check other types of loans before buying a car.
pre owned car loan: You can get a pre-owned car loan from banks, NBFCs, or even fintech platforms. However, before availing such loans, it is better to compare the interest rates and check whether the lenders offer fixed or variable rates of interest.
Manish Choudhary, President and Chief of Staff, Poonawalla Fincorp Ltd. said that interest rates on loans for used cars usually carry a slightly higher premium as the asset exposure increases in case of a used car. Currently, pre-owned car loan rates start at around 10%, while loan rates on new cars are as low as around 7%. Interest rates may also change depending on the buyers’ credit history, vehicle type, etc.
Gaurav Agarwal, Director, Paisabazaar.com said, “Lenders also use their appraisal mechanism keeping in mind the age and model of the vehicle. This process increases the chances for used vehicles to arrive at prices lower than the selling price quoted by the seller, resulting in a lower loan amount. Lenders impose several restrictions on the tenure of the used car loan. Therefore, these limits and restrictions make pre-owned car loans an inefficient means for financing used cars.”
personal loan: You can also opt for a pre-approved personal loan for buying a car. Experts say that those who are planning to take a pre-owned car loan to buy their used car should also check the personal loan offers available on their credit profile. Personal loans are often comparatively cheap. Depending on their credit profile, potential buyers may get larger loan amounts, longer loan tenures and lower interest rates.
Home Loan Top-up: Existing home loan borrowers can opt for a top-up home loan to purchase a used car along with their new car. “Depending on their remaining loan tenure and outstanding loan amount, availing a top-up home loan can help them get a larger loan amount for a longer tenure and lower interest rates,” said Agarwal.
Take the mint: Buyers now have the option of opting for a pre-owned car loan, personal loan or even top-up on their existing home loan. However, one must ensure that the loan amount is based on certain factors. These include the cost and affordability of a used car, and equated monthly installments (EMIs) that buyers are comfortable with. A higher contribution towards the purchase of a used car will reduce both the loan amount and the need to pay the monthly installment.