According to a report submitted by Mordor Intelligence, the number of used car sales was recorded at 4 million in Financial Year 2018 – 19. On the other hand, new car sales were recorded at 3.6 million in the previous fiscal year. Overall, the Indian pre-owned car market is valued at over $21 million. Are you Planning to Take a Pre-owned Car Loan?
Based on their studies, it was concluded that the second-hand car sector would see a compounded growth rate (CAGR) of 15.12% in the time span from 2019 – 24. One of the key grounds on which such growth numbers are attributed is the lowering of GST rate from 28% to a range of 12% 18%.
However, used car loan saw a rather dwarfed penetration rate compared to new car loans. A primary reason would be most financers employ inconvenient terms concerning used cars in comparison to new cars.
Henceforth, when you apply for second-hand car finance, there are certain factors which you should take into account.
Things to keep in mind when planning to avail a Used car loan
- Loan-to-value ratio
When you opt for a used car loan, the financer will sanction a certain percentage of such a car’s value. This percentage is known as the loan-to-value ratio or percentage. Such LTV varies from one NBFC to another. In most cases, a percentage of 70% is provided as a loan while the rest needs to be paid as a down payment to the lender. Therefore, thoroughly consider whether you possess the necessary finances to make such down payment before applying.
Used-car loan interest rates also vary from one financial institution to another. While PSU financers offer affordable interest rates, other financing options such rates usually start from 13%. On that account, financial experts suggest opting for a personal loan, interest rates for which depend primarily on your credit score, employment or income status, and loan amount. In that case, you might be able to acquire rates which are comparatively affordable than used-car loans.
Apart from interest rates, you also need to take into account the charges associated with your second hand car finance. Some financers charge up to Rs.12,000 as processing fees which significantly increase your cost of the loan. On that account, thoroughly research about the associated charges when availing such a loan.
Most financers value the vehicle you are to purchase before determining the loan amount. For that purpose, they either employ their own valuation process or base it on the insured’s declared value (IDV). It might be so that the valuation of such a car is much higher than its purchase price. As such, you have to shell out the additional expense from your own savings. A more convenient option, in that respect, would be a personal loan. As it does not come with any end-usage restriction, it allows you to avail the loan amount based on your credibility. It is one of the top reasons to apply for a personal loan.
You should also consider the repayment tenor when availing a pre-owned car loan. It is a primary determinant of the EMIs on your loan. In case of such car loans, tenor extends up to 60 months. A longer loan tenor implies lower monthly EMIs and vice versa. On the other hand, a longer personal loan tenor also implies a high cost of the loan. You can use a personal loan EMI calculator to calculate personal loan EMI to determine which tenor would be more suitable to your financial standing.
Loan application and sanctioning process
You should also consider the application process and subsequently, the time taken for loan approval. In case of second-hand car loans, it might take somewhere around a week on account of the list of formalities which also includes vehicle valuation.
In that respect, a personal loan can be more convenient, as most reputable financial institutions such as Bajaj Finserv approve and disburse loans within 24 hours of approval.
Additionally, they also provide pre-approved offers on such loans which make the application process more convenient and time-effective. These offers apply to a host of credit facilities which include business loans, home loans, loans against properties, etc.
Lastly, check the vendor you are purchasing your pre-owned car from. In case you purchase it from the unorganised sector, it might delay your verification and valuation process.
These are a few factors which you should thoroughly consider before availing a pre-owned car loan. Opt for the most suitable financing option to make your second-hand car purchase as beneficial as possible.