5 things to keep in mind while opting for a pre-owned car loan

Owing to its lower upfront cost, a pre-owned car is a popular option for many first-time buyers.

5 things to keep in mind while opting for a pre-owned car loan
For used-cars, LTV ratio is generally between 80% and 90% of the value of the car.

Everyone wishes to ride in one’s dream car. However, if you can’t afford a new one, particularly at the beginning of your career, there is no harm in opting for a pre-owned or used car, which will also take you closer to your dream. Owing to its lower upfront cost, a pre-owned car is a popular option for many first-time buyers.

However, you must perform all due diligence before buying a used car, like checking the car’s condition, its histoy and registration documets, among others. Also, if you want to go for a used car loan, make sure to compare all the loan offers to find the one with the best repayment terms. Here we take a look at five things which you must keep in mind when opting for a pre-owned car loan:

Credit Score: The most crucial factor before availing a credit/loan for any type of asset purchase is one’s ‘credit score’. For pre-owned cars too, a healthy CIBIL credit score, i.e. above 750, will work in the favor of the buyer to avail a low interest loan, as compared to those having a poor credit score.

“Therefore, as a buyer of a used car, ensure to check the credit score with the credit bureaus before applying for a loan application with any lender. Any discrepancies in the credit report should be addressed immediately with the credit bureaus or with the lenders with whom the buyer has any previous or existing loans in his/her name,” says Manish Chaudhari, President and Chief of Staff, Poonawalla Fincorp Ltd.

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Extra Charges: To avoid payments on any hidden charges over and above the sanctioned loan amount, it is imperative to gain an understanding from the lender about any additional charges that would require the buyer to pay. Charges such as processing fees, stamp duty and foreclosure charges may attract extra fees for the buyer. It is advisable to do a bit of research on product features before applying for a loan with any lender.

Interest Type: Just like any other retail loans in the market, pre-owned car loans also come with 2 types of interest rates, i.e. – ‘Fixed’ or ‘Floating’. Basis one’s financial obligations, a buyer should be wise to know which type of interest regime he/she would be comfortable in the repayment obligation to the lender. Any ad-hoc decisions in excitement to own a car may lead to further debt stress and mismanagement of personal finances.

Vehicle Insurance: The law mandates every vehicle plying on Indian roads to be insured under the mandatory Third-party (TP) insurance cover. “It is prudent to check with the seller that the previous vehicle owner does not have any financial liabilities due to the vehicle that is being sold. This due diligence on insurance is a must to ensure a seamless purchase without any obligations to pay for damages caused to third parties from the previous owner,” says Chaudhari.

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Loan To Value (LTV): As the term suggests, LTV is the amount of loan that will be eligible as a proportion of the value of the vehicle. In the pre-owned car finance market, the lender usually does not offer 100% loan amount to the loan applicant. For used-cars, LTV ratio is generally between 80% and 90% of the value of the car. This also depends on the applicant’s credit score and may differ too. If the buyer’s credit score is healthy, he/she should search for lenders whose LTV component is higher, thus ensuring a quick and a seamless loan journey.

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