Top Used Car Loan Tips to Save Money and Time

One of the biggest factors when deciding between a new car and used car is the availability and feasibility of financing the purchase. New car loans differ from used car loans in a few different ways, most important being the higher rate of interest for used car financing. While that is an important consideration, financing a used car can still be quick, easy, transparent and affordable, when choosing a used car loan from CARS24, for example. In this article we’ll explain the used car loan tips that will help simplify your purchase and get the best deal on financing your dream car. 

Join the CARS24 official car community, AUTOVERSE for more insights, discussions and more. 

What is a Used Car Loan?

A used car loan is a type of financing that allows a buyer to purchase a second hand car on monthly instalments, instead of paying the full cost upfront. A used car loan is beneficial in more ways than one. Firstly, a used car purchase saves buyers from the initial big hit of depreciation that affects all new cars. Further, a used car loan can help a buyer save money for emergencies or future financial investments, while also providing more flexibility through easy monthly payments. That said, used car loans differ from new car loans in a few ways. 
 

• Loan amount: A used car loan will typically extend to a maximum of 90 percent of the value of the car, new car loans can extend up to the full cost of the car
   
• Interest rate: Interest on used car loans varies between 13-18 percent, versus 8.5-13 percent for new car loans
   
• Loan tenure: Used car loans are typically offered for a shorter duration of up to five years repayment, versus new car loans which can go up to seven years and beyond
   

While a large majority of Indians (nearly 80 percent) prefer a loan when buying a new car, only 25-30 percent of used car buyers opt for finance. Experts say used car financing penetration is low because the used car market has been largely unorganised with no standard pricing, making banks and finance companies reluctant to offer competitive loans. However, this trend is changing with the used car market taking off in recent years. On a platform like CARS24 with thousands of certified second hand cars, instant loan approval and easy EMI options, 60 percent of buyers opt for finance.

Tips to get the Best Used Car Loan

Here are a few ways to get the best deal on financing your second hand car purchase:  

Research car wisely

Various examples of any particular model are usually available in the used car market. Shop around to find the best deals taking into account age, mileage and condition of car. These are all factors that ultimately affect your loan amount, repayment terms and interest rate. 

Budget wisely 

Assess how much you can comfortably put towards a used car, considering both the downpayment amount and monthly EMIs, without straining your finances. The 20/4/10 car buying rule is considered a golden rule here, which advises putting down 20 percent of the car’s value as a downpayment, choosing a 4-year loan tenure and spending 10 percent of your monthly income towards EMIs. 

Check your credit score

A loan applicant’s credit score is the first thing a bank or financing company will check when assessing legibility for a loan. Check your credit score before applying for a loan to ascertain your chances and take corrective actions, if required. A credit score above 700 is generally required for a loan of any type. 

Maintain your Credit/CIBIL Score

Regular and timely credit card or previous loan repayment is vital to maintaining a healthy credit/CIBIL score. A better credit score can help get more competitive interest rates on a loan. 

Add a co-signer with strong credit history 

A co-signer with a stronger credit history than yours can help secure better terms for your used car loan. 

Compare various sources

Different banks and lenders have varying interest rates, repayment terms and associated fees/charges available for loan applicants. Do your research to see which bank/financier offers the best rates for your situation. 

Negotiate

Negotiation for interest rates on used car loans might not be an obvious choice but it wouldn’t hurt. It is sometimes possible to get a bank/financier to offer a more competitive rate by just asking or leveraging another bank’s rates, provided your finances meet the required criteria.

Avail pre-approved offers

Pre-approved loans, from institutions you may have a previous relationship with, are an easy and quick way into used car ownership. Or you can head to CARS24 which has a selection of certified used cars and pre-approved financing. 

Choose the right loan tenure 

Choosing a longer loan tenure to lower monthly EMIs may seem convenient but extends your liability, both in terms of debt time and interest exposure. 

Increase your down payment

Spending more money upfront as a down payment reduces your loan amount and as a result lowers monthly EMIs and overall interest costs. 

Avoid add-ons

A used car dealer may offer extra accessories such as new seat covers, or extra services such as rustproofing. These will either add to your upfront cost or your loan amount. Only choose what’s absolutely necessary. Remember, it’s a used car — keep money aside to deal with any mechanical issues if they pop up. Accessories and feel-good features can always be added later. 

Why Choose Used Car Loans From CARS24

Apart from the large inventory of certified pre-owned cars available on CARS24, the ready financing options will make your used car buying journey as smooth as it can get. 
 

• Same-day, paperless approval 
• Minimal documentation required
• Up to 100 percent financing
• Zero down payment
• Used car loan tenures up to six years 
• Interest rates as low as 12 percent 
• Loans for any used car up to 14 years of age
• Pan-India presence
• Offers available regardless of profession or background of the individual
• Even available for individuals with incomes starting from ₹15,000 per month
   

How to Use a Used Car Loan Calculator

A used car loan calculator is an automated tool to help ascertain monthly EMIs. Input your planned down payment amount, loan amount, loan tenure and interest rate and the calculator will tell you your expected monthly payments. The CARS24 used car loan EMI calculator can be used to conveniently plan your second hand car purchase. 

Additional Considerations for Second Hand Car Loans

Loan-to-value (LTV) ratio in used car loans is the ratio of loan amount versus the market value of the car. The LTV is calculated by dividing the loan amount by the vehicle’s value. A lower LTV could help secure a higher loan amount or better terms. Some lenders offer up to 115% LTV on used car loans. This means that if a used car costs ₹10 lakh but has a higher market value, it may be possible to apply for a higher loan amount to cover any additional vehicle expenses. 

Avoiding Common Mistakes

One of the most common mistakes people make when applying for a used car loan is rushing the process. As outlined in the ‘Tips to get the best used car loan’ section in this article, take your time and research used cars, lender’s offers and more. Some additional car loan mistakes to avoid are: 
 

• Overstretching your budget: Make sure to budget for EMIs, as well as maintenance, fuel and insurance
   
• Not reading the fine print: Make sure you are aware of all associated fees and charges, as well as any penalties for early pay-off or foreclosure where applicable
   
• Taking extended loan tenure: While an extended loan term makes monthly payments more manageable, it will increase your overall expenses in added interest charges
   
• Neglecting credit score: Failure to assess your credit score before applying for a loan can substantially affect your used car loan interest rates and terms 
   

Conclusion

A used car loan can be an easy path to ownership of your dream car even when you don’t have the means to buy it outright. Remember to take your time with your used car purchase, including selecting the right financing, for smooth, enjoyable motoring all through your car ownership experience. 

Disclaimer: CARS24 reserves the right to approve/disapprove the loan after the submission of documents.