With the second wave of the unprecedented COVID-19 pandemic hitting all states and cities of India, traveling via public transport like buses and metros has become extremely dangerous. It has become paramount to maintain social distancing to protect yourself and your family members, and doing that in public buses is nearly impossible in a country like India.
Opting for your vehicle has become a necessity. Having a vehicle in your household gives you the freedom to move freely. If you purchase a car from your savings or investment, it might put you at a disadvantage. However, another way to own a car without putting any burden on your pocket is through second-hand car finance. A used car loan is the best way to get one step closer to freedom from public conveyance.
Things to know before applying for a second-hand car finance
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Used car loan lenders offer up to even Rs. 10 lakhs as a loan. The interest rates are affordable with flexible repayment tenure options. Nonetheless, if it is your first time looking for second-hand car finance, follow the underlying points to avoid mistakes and get the best deal possible on your loan application.
A key factor that plays a crucial role in influencing your EMI amount is the interest rate. It should be the first thing to consider before applying for a used car loan. The interest rates across all platforms range between 10% and 18% per annum. Keep in mind that the rate of interest you get will depend on the age of the used car and your income.
The used-car loan approval process is lengthier than other loans. Once the seller agrees to transfer the vehicle documents in the buyer’s name, the bank verifies the registration certificate and the insurance documents. The process of document verification and their transfer to the buyer’s name can take up to 5 working days before the loan application is approved.
You will need to be aware of the process of documentation before applying for second hand car finance. It is not the case when you get a new car loan. You will only need to allow KYC checks and show a good credit score.
Another factor you have to consider is the repayment loan tenure, which you can avail of for up to five years. Although you can choose a loan tenure based on your preference, to a large extent, the loan tenure you can get may also depend on the car’s condition and age. If the used car requires a lot of maintenance, your lender will probably finance you less.
Besides that, you must avoid getting a car with an age of more than five years as lenders do not prefer second-hand vehicles beyond that age. A representative of the lender will first assess the value of the car and then decide a loan amount and the repayment tenure to offer.
Equated monthly instalments (EMIs)
Your EMIs constitute a portion of the principal loan amount and the interest. Before applying for a second-hand car, you will need to assess your needs and then choose an EMI that you can afford to pay without default. Knowing your EMIs enables you to better plan your monthly budget.
To determine an affordable EMI, use an online used car loan EMI calculator available for free. It is an online financial tool that gets you an automatic result based on your preferences. You will need to enter the values of the loan amount, interest rate, and loan tenure to figure out your preferred EMI. You can alter these values as many times as you want until you reach an EMI that you can afford to pay every month.
There are two steps in the documentation process – First, you will need to ensure that you have all the documents from the seller, and the lender will then conduct verification checks. Second, you will have to furnish the documents required to apply for second-hand car finance, which are:
- KYC documents for identification, address, and age proof.
- Income proof: Bank statements, ITR, form 16, and salary slips.
- Asset proof: Land or building tax receipts.
- A passport size photo of the applicant.
It is mandatory by law to have vehicle insurance, and it is essential to note that the lenders may not consider a loan application if the insurance is not renewed. Also, make sure that the registration certificate (RC) is in the name of the seller and the vehicle is not older than five years.