With the pandemic still casting a shadow on our lives, people are exercising a bit of caution on their buying habits.
Many are now opting for second-hand or used cars rather than new ones.
Says Sarosh Amaria, managing director, Tata Capital Financial Services: “Used car loan helps customers meet aspiration of owning a car. With essential factors, such as better road infrastructure increasing the longevity of cars, enhanced valuation methods by new age platforms, and financial institutions granting access to credit with flexible repayment options, the used car loan industry is expected to show a steady growth and become more organised.”
Many buy second-hand cars when looking for a premium model without having to stretch one’s finances. For instance, sedans from segments C and D lose as much as 40 per cent of their value in the first year alone. A premium model which retails new for almost Rs 15 lakh can be had for almost Rs 9.5 lakh, if bought second-hand within the first few years of the original purchase. So, if you are looking to acquire a higher segment car, a well-maintained pre-owned car could be a good alternative.
Typically, used car loans are provided at attractive rates of interest, and come with a repayment tenure of up to seven years. While certain lenders provide loans of up to 100 per cent of the car’s value, most banks and non-banking financial companies (NBFCs) offer used car loans.
That said, here are a few things to keep in mind when going for a used-car loan:
High Rate Of Interest: The rate of interest on used car loans are generally higher compared to those on new cars, because of the higher associated risk. While the new vehicles come with the manufacturer’s guarantee on the vehicle and parts, that is not the case with a used car. “There is no clarity on the state of the car, the number of accidents that might have happened, the condition of the parts and the engine, and so on. So, it is considered as a drawback. Besides, the financer also views the profile as slightly riskier,” says Abhinav Kaul, vice president, strategic partnerships, BankBazaar.com, a financial services website.
Type And Age Of Car: Factors such as the type and age of the car matter when going for a used car loan. For instance, the average lifespan of a car is usually considered to be 15 years.
As such, most banks may not fund a car older than 8-10 years.
“In this case, the tenure of the loan will not exceed the same time span. So, if you are buying a five-year-old car, your loan tenure will not be more than three-five years. Also, most banks will not finance more than three resales,” says Kaul.
Registration Certificate Of Car: Make sure that the registration certificate is clear of any hypothecation to any bank or lending institution. It means the car was purchased on loan, and maybe the loan is still in service. The seller has to get the hypothecation removed from the registration certificate and get a new registration certificate in his/her name from the regional transport office (RTO), before putting up the car for sale.
Check All Papers Thoroughly: Check all papers, namely insurance and registration certificate are in place. Also check the engine number and the chassis number on the vehicle and match it with the number mentioned in the registration certificate. Also check if the car has had any accident, and any service issue.