Kolkata, November 24: With several models and deals available in the market, many people prefer buying used cars. Just like new cars, car loans are also available on used cars. We take a look at 5 things you must keep in mind when applying for a used car loan:
Interest rates: Like any loan, one of the most important things to consider about a used car loan is the interest rate. Used car loan interest rates are higher than that of new cars and can range from 10-17 per cent. On the other hand, interest rates on personal loans could range from 10.5- 22 percent. Also personal loans would help you fund the entire amount of the car. When going for a used car loan, find out the interest rates being offered by different banks and financial institutions. Also, compare it with personal loan interest rates before making a decision.
Choosing the loan amount: When choosing a car, keep in mind how much you would have paid for a new car and then look for similar models of used cars. Try to keep the loan amount low and do not stretch your budget to buy a hi-end car whose used price may seem reasonable. Remember high-end cars also have a higher maintenance cost. So it is important not to take a used car loan of a huge amount.
Make a bigger down payment: Having chosen the loan amount, it is important to make a big down payment. Used car loans will give you a loan for up to 85 per cent the price of the car. However, remember that used car loan interest rates are on the higher side. So you will end up paying more as interest. Also, a used car will cost less than a new car. When going for a used car loan, make as big a down payment as you can. This will keep your EMIs manageable.
Choosing the tenure: Used car loans mostly have a maximum tenure of 5 years, though some lenders may offer a tenure of up to 7 years. However, make it a point not to extend your tenure too much. This is because since the interest rate is on the higher side, you will end up paying more as interest on a loan of a higher tenure. Try to keep your loan tenure within 3 years.
Use a loan calculator to find out your EMI: When taking a loan, it is important to get an idea of the EMI outgo every month. The EMI outgo should be such that you can make those payments every month without putting a strain on your finances. You can use a loan calculator for this purpose. Enter details like loan amount, tenure and interest rate and the calculator will show you details of your EMI.
To sum up, it is important to keep in mind that used car loan interest rates are on the higher side. Analyse your cash flows and choose an EMI that suits you.