After obtaining a driving license, most of the new drivers prefer buying a second hand car. The argument behind this is that, it is always better to go for a new car after honing one’s driving skills. But how to get used car loans from banks that are affordable and will serve your need? Financing a used car is no longer an impossible task today. There are many NBFCs and banks that do auto loans. The list includes ICICI Bank, HDFC Bank, Magma Fincorp and Fullerton Credit to name a few.
People may buy second-hand cars for constrained budget as well and in this case they are more likely to finance the car through a loan. The approval of the automobile loan is subject to the model, age and condition of the car unlike new car loans, where you just need to sign the dotted line. Additionally, used car loans interest rates are generally 3% to 5%, which is higher than the new car loan. In the case of new cars, lenders may offer 100% of the new car value, whereas for old cars the loan amount may be 70% to 90% of the car value.
How to Get Used Car Loans
Getting a used car loan from bank is not tough. However, there are certain factors which you need to bear in mind when applying for one:
1. Interest Rates: The interest rates will tend to be higher as the car which you are going to buy has already depreciated in value. Thus, its value as collateral continues to drop over the loan tenure. Banks are in a hurry to recover the money faster by charging a higher interest rate.
2. Tenure: When you apply for a used car loan you may notice that the tenure is shorter than a regular loan. The banks want their money to be repaid at the earliest as the condition of the used vehicle continues to deteriorate and very soon it may end up becoming a worthless asset.
3. Type of car: These type of loans are usually offered for high-end or luxury cars which are in a good condition. The reason being that in case of defaults, banks would be able to dispose cars in good running condition to recover their outstanding dues. It may be difficult and at times impossible to recover the money with a poorly maintained vehicle.
4. Loan to value ratio: The LTV Ratio can be defined as the ratio of the amount you borrow to the value of purchase. If you purchase a used car for Rs. 1 lakh and you take a loan for Rs. 70,000, the LTV would be 70%. Lenders offer a low LTV for used car loans in order to reduce the risk in cases of customer defaults.
Features of Vehicle Loan
The trend of buying used cars has been gaining popularity over the last few years. The reason behind this is the increasing desire to own a car. Affording a brand new car may not be easy for everybody and this gives rise to the demand for used cars. To add to it, consumerism has ensured that manufacturers keep on coming out with newer models every year, thereby encouraging people to dispose older models quickly and buy new ones. Let’s take a look at the features associated with used vehicle loans:
Maximum loan amount: There is no fixed amount up to which lenders can offer used car loans. The rules about the maximum loan amount vary across banks. It can go up to Rs. 75,00,000 for imported cars whereas for the rest it is Rs. 15,00,000. The maximum loan amount will vary across borrowers depending on their income, the type of car they are interested in buying and their credit history. So applying for a car loan with bad credit history may restrict you to get your desired loan.
Eligibility: The condition and age of the car plays a crucial role. Most banks will not offer a loan for any car which is 5 to 6 years old. As a rule of thumb, the age of the car and the loan tenure should not add up to more than 7 years. The model of the car too plays an important role. If it is a new car you are interested in buying but the model has phased out, chances are slim that the banks will consider it eligible for a loan.
Must Check: 10 Things to consider when Buying your First Car
Documents needed for car loan: While applying for a used car loan you need to submit the:
- Identity proof
- Income proof
- Address proof
- Papers related to the car’s old and new registration
- The new insurance documents in the loan seeker’s name
You need to bear in mind that the lender will send an evaluator who will assess the true condition of the vehicle. He will assess the market price of the vehicle before taking the final call.
Car loan interest rates in banks (comparison)
|Bank Name||Interest Rate for Used Car Loan||Interest Rate for New Car Loan|
|ICICI Bank||15.50%||10.75% – 12.75%|
|Axis Bank||14.50% – 16.25%||11%-12%|
|HDFC Bank||14.50% – 17.50%||9.30% – 14%|
Take your personal needs and the financial situation into account before choosing the type and model of the car. After you have chosen the vehicle, it is necessary to determine the amount you can pay. If you can make a substantial payment towards the purchase you can opt for a smaller loan amount with affordable installments. Getting a used car loan from a bank needs you to take care of these small things mentioned above. Also before you decide, compare interest rates on car loans across lenders to avail the best used vehicle loan.