India is on its way to being the third-largest market for pre-owned, used or second-hand cars in the world. Owning a second-hand car has benefits such as:
- No sales tax is levied on the car
- There is no waiting period
- The amount of money that one saves by not buying a first-hand car can be put to use for buying a high variant second-hand car with several features.
However, one of the most significant advantages of buying a second-hand car is that access to second-hand car finance is easier as compared to a few years ago.
Here is how you can take a second-hand car on finance:
Nowadays, most banks and NBFCs offer loans for used cars. Here are some things that you can keep in mind while availing of a used car loan.
The car’s age and model
You can get a loan for any new car. But when it comes to a used car, the age of the car is crucial. Lenders determine whether a car is loan-worthy or not by checking out its age.
The age of the car is also important from the perspective of the loan tenure. The sum of the age of the car and the loan tenure usually cannot go beyond seven years. So, if the car is three years old, the buyer (loan applicant) would be given a loan tenure of four years. Generally, vehicles that are more than 4-5 years old may not get financing.
Another important aspect is the model of the car. Certain models get phased out and aren’t manufactured anymore. It is likely that lenders wouldn’t want to provide second-hand car finance for such models.
Higher interest rates
Once the buyer has shortlisted a car and approached a lender, the lender would want to value the car. For this, the lender would deploy a valuation expert to scrutinize the vehicle and calculate its value. The valuation of the car would depend on various factors such as
- Condition of the car
- Kilometers covered
- Model of the car
After ascertaining the value, the lender would be ready to offer a loan to the buyer. The second-hand car loan amount could range between 70% and 90% of the value of the car. The interest rate charged by the lender would be dependent on aspects such as the profile of the customer, age of the car, and model of the car.
Usually, used car loans charge an interest rate that is around 3% more than what is charged for new car loans. So if the interest rates for a new car varies between 11% and 14%, the second-hand car loans would vary between 14% and 17%.
It is beneficial to buy from an organized car dealer.
Nowadays, there are several organized dealers in the market. It is beneficial to purchase second-hand cars from such dealers because:
- Dealers source the cars
- They conduct repairs, spruce up the cars and certify them
- They scrutinize the documents and conduct due diligence
- They put the cars up for sale
- Buyers get a warranty of anywhere between six months to a year when they purchase a used car from an organized dealer
Lenders are comfortable offering second-hand car loans for a car bought from a second-hand dealer as the latter has already conducted substantial due diligence.
Note:
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