A Detailed Guide to Help You Avail Loans for Used Cars

The market for used or second-hand cars in India has been on the rise lately, and the demand for these vehicles has more than doubled. For instance, for every 50 new cars bought the demand for used cars exceeds 100 units. The gain in such recent popularity has been flamed by income stagnancy in the pandemic and post-pandemic economy along with increasing need for vehicle ownership. Coupled with this, financial institutions have also been pushing the lending of loans for used cars with the view of easing such purchase.

Loans for Used Cars

These loans come with attractive features and facilities that make financing affordable as well as convenient for individuals across different income strata. If you are planning to purchase a used car, it can be wise to be well-informed about these loans so that you simplify financing for vehicle purchase without straining your income. Let’s take a look at all the essential details related to used car loans before proceeding to apply.

What is a Used Car Loan?

A used car loan is a secured funding option that allows individuals to purchase their desired second-hand car model through hypothecation financing. Under this arrangement, the lender extends funding to the borrower as a percentage of the used car’s current resale value and in turn hypothecates the vehicle until complete loan repayment.

The loan amount is decided based on the lender’s LTV or loan to value ratio, which is a representation of financing as a percentage of the asset’s current market value. With some of the reputed lenders, the LTV of loans for used cars can go up to 90%. This means that in case you are availing a used car loan with the vehicle’s resale value at Rs.5 Lakh, availing up to Rs.4.50 Lakh should not be a trouble if you meet all necessary eligibility requirements. The remaining amount would need to be paid to the seller as down payment. 

Here, it is important to know that if your financial capacity supports, it can be wise to opt for a higher down payment and seek a loan amount lower than your maximum funding eligibility. It can create a positive borrowing profile and help you convince the lender for favourable terms on the loan, including affordable used car loan interest rates.

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Top Features and Benefits of Loans for Used Cars

Below mentioned are some popular features available with used car loans if you avail funding with a reputed lender.

1. Low EMIs than new car loans: One of the most attractive features as well as benefits of loans for used cars is that their EMIs payable are usually lower than loans for new cars. It is primarily because the loan amount a borrower seeks for vehicle purchase is low due to the inherent low cost of the car. Certain lending institutions also offer competitive interest rates that ultimately make the EMIs affordable. It is ideal that you first check the EMIs payable for your loan amount sought with the help of an EMI calculator and then apply for the advance based to match loan affordability as per your financial standing.

2. Financing for all vehicle makes and models: Another attractive feature of a used car loan is that it is available for used vehicles of all makes and models, without the lender imposing any restriction. It thus gives a potential borrower to choose a vehicle model of his/her choice without worrying about the cost involved.

Another positive aspect of this feature is that in case you have selected a high-end used vehicle model whose price is higher than generic new car models, the loan amount available can suitably fund the cost of your selected vehicle model due to the high financing quantum available. Eligible individuals can seek financing of up to Rs.50 Lakh as used car loans with some of the best lending institutions in the market.

3. Flexible tenures for repayment: Used car loans also come with long and flexible tenures which allow an individual to choose the repayment term as per his/her suitability. Choosing the right repayment tenure can be crucial as it contributes significantly to the overall loan affordability. First, tenure impacts the EMIs you would end up paying towards your loan repayment. Secondly, it also contributes to the total interest accruing on the advance, whereby a longer tenure means higher interest payable and vice versa. Thus, even though a long tenure reduces the immediate loan liability through lower EMIs payable, the long-term impact on your finances is negative due to high interest accumulation and thus higher repayment liability for the advance. With the best lenders, an eligible individual can avail a tenure of up to 5 years for convenient loan repayment.

4. Online application process: Many lenders have today introduced completely digital application processes, whereby you can apply for a used car loan from anywhere. So, in case you reside in Delhi and need to avail a second hand car loan in Delhi from a designated lender but your current location is Mumbai, you can easily visit your lender’s website and complete your loan application online. The steps needed to complete online application of used car loan are simple and do not require any expertise to complete. Following are the required steps you would need to complete to apply digitally.

a. On the lender’s official website, navigate to the ‘Loans for Used Cars’ page.

b. Click on the ‘Apply Now’ button on this page, which will redirect you to the application form.

c. Fill in all personal, financial, and occupational details along with loan requirement accurately and submit.

d. Complete paperwork by submitting required documents, including your ID proof, income proof, and address proof.

Once you have applied for the loan, the processing starts immediately, with approval comes by shortly if your profile ticks all necessary eligibility requirements.

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Along with these, the costs of insurance and depreciation for used car loans are low too as compared to those for new car loans. Plus, you can choose the repayment option of your choice to make loan repayment as per suitability. It is important that you collect all necessary documents from the vehicle seller as required by the lender to provide ownership. Note that loans for used cars are available for second-hand cars not older than 3 years with most lenders and choose your vehicle model accordingly for purchase.

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