How to Get a Used Car Loan: Steps and Things You Should Know

In India, the demand for second-hand cars is higher than for new cars, especially among people who are buying their first vehicle. Using a personal loan as a second-hand car loan can be a good way to buy a pre-owned car without hitting your wallet too hard.

However, only a small percentage of used-car buyers finance their purchase with a loan, compared to a majority of those buying new cars. This is usually because second-hand car loans from a bank can be difficult and expensive, but that’s where a flexible and affordable personal line of credit from MoneyTap can help. Let’s see how to get a loan for a second hand car!

How To Get a Used Car Loan

Before exploring the option of purchasing a used car through EMI, it's important to understand the eligibility criteria set by lenders. These criteria serve as the key requirements for obtaining financing for your desired vehicle.

Here's what you need to keep in mind:

1. Age Requirements

   • To qualify for a pre-owned car loan, individuals typically need to be between 21 to 65 years old.
   • This age range ensures a stable financial foundation for loan repayment.

2. Stable Income

   • Having a reliable source of income is crucial.
   • Lenders need assurance that borrowers can manage their monthly payments.
   • Documents like salary slips or bank statements are commonly used to verify income.

3. CIBIL Score

   • A CIBIL score of 720 or higher is generally seen as favorable and improves the chances of getting a pre-owned car loan with good terms.
   • While a lower CIBIL score may still make you eligible for a loan, it might result in a higher interest rate or require a larger down payment.

4. Employment History

   • Having a consistent employment history strengthens your loan application.
   • Lenders often prefer borrowers with a steady job record, as it demonstrates stability and the ability to repay loans.

Required Documents

Here's a simple rundown of the documents you'll need:

1. Proof of Identity and Address

   Bring along a valid form of identification such as your Aadhaar card or passport, along with documents confirming your residential address, such as utility bills or a rental agreement.

2. Income Verification

   To show lenders your financial stability, provide evidence of your income, which can include salary slips and/or bank statements.

3. Car Documents

   These are super important – you'll need the Registration Certificate (RC) and insurance documents for the car you want to buy. These papers prove the car is legit and properly insured.

How to Choose the Best-used Car Loan

1. Compare Interest Rates and Loan Terms from Different Lenders

   Interest rates are crucial when it comes to loans. They can vary a lot, so take your time to compare rates from different banks and financial institutions.

   Also, pay attention to the loan terms. Choosing a shorter term might mean higher monthly payments, but it could save you money on interest in the long run.

2. Consider Your Credit Score and Debt-to-Income Ratio

   Your credit score matters. Aim to keep it good to get better deals. Lenders also look at your debt-to-income ratio, which is your monthly debts compared to your income. Keep it reasonable.

3. Choose a Lender with a Good Reputation

   A lender's reputation matters a lot. Do some research, read reviews, and ask for recommendations.

   Picking a lender with a solid track record means you're more likely to get fair terms, transparent dealings, and excellent customer service throughout your loan experience.

Tips for Buying a Used Car on a Loan

1. Research the Vehicle

   • Start by checking out the car's background thoroughly. Look into its make, model, and any past accidents
   • Also, make sure there are no existing loans tied to the vehicle. Finding potential issues early on can save you from headaches later.

2. Negotiate the Price

   • Don't be afraid to negotiate with the seller for a better deal.
   • Paying less upfront means borrowing less and having smaller repayments.

3. Inspect the Vehicle

   • Before sealing the deal, have a trusted mechanic check the car.
   • They can find hidden problems that might cost you a lot to fix later.

4. Understand the Terms and Conditions

   • Read through your loan agreement carefully.
   • Make sure you're okay with the repayment plan and any extra fees mentioned.

5. Check Ownership History

   • Verify the car's ownership history and ensure the seller has a clear title.
   • This can prevent future legal problems.

6. Consider Total Cost of Ownership

   • Remember to think about more than just the purchase price. Take into account things like insurance, fuel, maintenance, and taxes.
   • This gives you a clearer idea of what you'll be spending in the long run.

7. Research Loan Penalties

   • Know what happens if you're late with payments or want to pay off your loan early.
   • Understanding any extra charges or penalties helps you manage your loan better.

Why Opting for Second-Hand Car Finance Makes Sense

1. Financial Flexibility

   Opting for second-hand car finance offers flexibility in managing your finances. Since used cars come with lower initial costs, the loan amount needed is more manageable. This flexibility proves handy, especially when unexpected financial needs arise, preventing strain from high monthly payments. Second-hand car finance helps balance immediate needs with long-term financial stability.

2. Significant Funding Assistance

   Second-hand car finance provides substantial funding, allowing you to cover a significant portion of the vehicle's cost. This ensures acquiring your desired pre-owned car while upholding your financial commitments.

3. Preservation of Savings

   Buying a car often requires a substantial upfront payment, which can deplete a large portion of your savings. Second-hand car finance allows you to preserve your savings for emergencies, contributing to a more secure financial future.

4. Flexible Repayment Options

   Second-hand car finance typically offers convenient repayment options tailored to your financial circumstances. Lenders understand individual needs and provide flexible repayment terms to accommodate varying financial situations.

5. Efficient Fund Disbursement

   A second-hand car loan provides quick access to funds once approved, making it a convenient option for obtaining necessary financing promptly. The efficient disbursal process associated with a used car loan makes it a popular choice among individuals seeking swift financial assistance.

If you’re planning to buy a pre-owned car on loan, keep these 5 factors in mind:

1. Interest

   Despite high demand, traditional loan providers are hesitant about financing used cars at affordable rates. When you approach a bank for a used car loan, the interest rate will usually be 3-4% higher than rates for new car loans. If you have a good credit score, a Freo (Formerly MoneyTap) personal loan to be used as a second-hand car loan from an available line of credit is cheaper. You can also make extra payments to reduce the amount on which interest is charged, without prepayment penalties.

2. Documentation

   The documentation required for a used car loan can be very complicated, and most banks will only approve a loan after the seller or dealer has transferred the car title to the buyer’s name. They can refuse the loan if the RC or Registration Certificate is not in the seller’s name, or if the insurance has not been renewed. If you have a line of credit from MoneyTap, taking a second-hand car loan from it does not involve any of these hassles.

3. Loan Amount

   Banks and car loan providers use their own valuation process or provide a certain percentage of the IDV or Insured’s Declared Value for a second-hand car. This is usually much lower than the price you need to pay for the vehicle, and you will need to cover the remaining amount from your pocket. MoneyTap’s approved loan amount is determined only by your eligibility, not the car’s valuation.

4. Tenure

   Whether you opt for a used car loan or a traditional personal loan from a bank, the maximum tenure provided for repayment will be 5 years. In some cases, it could even be less than that, and failing to repay the complete amount within the decided period of time means heavy penalties and fees. A personal credit line from MoneyTap, on the other hand, is available for a lifetime so you can borrow from it when in need for a used car loan.

5. Approval Process

   The application and approval process for a second-hand car loan can take quite a while, usually requiring multiple visits to the bank or financial institution offering the loan. Even after approval, disbursal of funds will take a minimum of 7 days. Personal loans may be approved and disbursed a little faster, but it will still take a few days. With MoneyTap, the loan amount is available instantly after approval.

If you’re looking for a used car, there’s no need to wait for funds when you could get them right away with Freo.