How to finance a pre-owned vehicle easily
What's the story
Purchasing a used vehicle is a smart financial move for many Indians, providing the opportunity to own a car or bike at a significantly reduced price compared to a new one. However, financing such a purchase comes with its own set of challenges and questions. This guide will steer you through the process of securing financing for a used vehicle, empowering you to make a confident decision.
Credit score
Understand your credit score
Your credit score is crucial for your loan eligibility. A higher score increases your chances of approval and ensures you get the best interest rates. Before you apply, check your score with authorized bureaus such as CIBIL. Scores above 750 are considered excellent. Some lenders may approve scores around 650, but expect higher interest rates.
Loan comparison
Compare loan offers
Various banks and financial institutions provide different interest rates and conditions on used car loans. Don't rush, compare these offers diligently. Don't just focus on the interest rate; also evaluate processing fees, loan tenure, and prepayment penalties. A lender might provide a lower rate but compensate by charging a higher processing fee or imposing a strict penalty on early repayment.
Vehicle value
Evaluate the vehicle's value
The loan amount you are eligible for is directly proportional to the value of the vehicle you are planning to buy. Lenders usually finance 70% to 90% of the car's value as determined by them, not necessarily the purchase price or market value. Hence, getting an independent evaluation of the vehicle from reliable sources like Orange Book Value will help you negotiate better with both the seller and lender.
Down payment
Consider down payment options
The down payment is also a key consideration in used vehicle financing. A higher down payment means a smaller loan, and that can save you money in interest over time. If possible, aim to put down at least 20% of the car's value. Be aware that some lenders might require larger down payments depending on the age and condition of the car.
Loan terms
Read loan terms carefully
Before signing any loan agreement, make sure to read all the terms and conditions mentioned in the document carefully. Particularly, you should be cautious about the clauses related to foreclosure charges, late payment penalties, and changes in interest rates during tenure periods as they can significantly increase your overall cost.