Used car ownership has grown significantly today, with many switching to old car purchase due to the various advantages it offers, one of them being financial benefits. These are vehicles that have either been sold once or twice and are ready for sale again. Pre-used condition of the vehicle significantly brings down its cost in the car market, making such purchase quite affordable. So much so that the sale of used cars has almost doubled that of new cars. One can further avail a loan on old car for the purchase of his/her desired used vehicle.
When applying for the funding, one must take care to keep a few things in mind that can help find the right financing option along with securing favourable terms on the advance. Given below is a list of important things to know and/or take care of before availing second hand cars on EMI. Let’s have a look.
7 Things to Know When Availing a Loan on Old Car
- Car type eligibility: Thanks to the lending policies of financial institutions, today one can avail funding for the purchase of all types of used cars irrespective of their makes and models. It may, however, get challenging to avail funding if the used car is older than 3 years as the risk of lending in such cases increases manifold for the financial institution.
- Financing options: With the growing used car market, the available choices of financing can spoil you with options. While some car manufacturers themselves provide funding under their financing wings, you can also look for a loan on old car from other lending institutions, including traditional banks and Non-banking Financing Companies. You can compare among the available lenders to decide on the most suitable financial institution to borrow from for used car purchase.
- Suitable valuation for funding: Understanding the valuation of a new car is fairly simple as it comes with a clear price tag. However, it can be quite a challenge when deciding on the valuation of a used car due to the involvement of so many factors. You need to assess and compute the value of a second-hand car only after taking into consideration a range of factors. The important factors to consider when deciding on used car valuation include the following.
- Total number of kilometres the car was driven
- Profile of previous owner/owners
- Purpose of vehicle use, whether commercial or personal
- Overall depreciation of the car
- Location of its use
- Previous accidents sustained
- Insurance coverage
- Modifications undertaken for the vehicle
Along with these, a clear title of the car is equally important to determine its valuation for sale. Accordingly, you need to apply for a loan to finance your used car purchase.
- LTV or Loan to Value Ratio: LTV is a prime concept governing the mechanism of all secured loans. When collateralising an asset to raise funds, you are allowed to raise only a part of the total market value of such asset as funding, represented in percentage and known as LTV. In the case of purchasing second hand cars on EMI, LTV with some best lenders can go up to 90% of the car’s resale value. You must check this with your lender before finalising the loan offer. It should give you a fair idea into how much financing you can avail for your used car purchase and how much you would need to make as down payment.
- Interest rates and charges: Interest rates on used car loans are usually higher than those on new car loans for a simple reason that lending against used cars is much riskier for financial institutions. Nevertheless, one can still look out for lower rates and use his/her borrowing profile to negotiate with the lender for rate reduction. Further, as these loans attract much lower amounts than new car loans, the overall loan affordability is maintained, allowing individuals to repay their used car loans conveniently.
When it comes to paperwork for loans on old car, the document requirement increases due to the hassles of previous ownership involved along with past usage history. You must thus arrange all necessary documents like RC, insurance certificate, PUC certificate, and the likes from previous owner before applying for the advance to experience a smooth loan processing.