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How To Get A Loan For A Second-Hand Car?

    Mr. C.S. Sudheer | Wednesday, February 15,2017, 07:15 PM
 

Driving is your passion. You love borrowing your friend’s car and taking your family on long drives. Driving your friend’s car is great, but what if you have your own car? Unfortunately, your salary does not allow you to afford a brand new car. But there’s a way out. It’s called buying a second-hand car, popularly called a used car. Many of our citizens disliked buying a used car. They said…..Buying a used car is below our dignity. But this is fast changing.

I remember seeing an advertisement on TV, where a guy buys a used car and drives it home with his wife sitting beside him. He is very depressed as he drives this car home. His wife asks him to distribute sweets to neighbors and friends on this joyous occasion. He responds angrily saying….This is a second-hand car. Why bother distributing sweets. His wife replies….This may be a second-hand car, but for us this is our first car. Our guy happily distributes sweets to friends and neighbors.

Many of our citizens are buying used cars to hone their driving skills. If you are a new driver who has just got a driving license, it is best to hone your skills on a used car. Then buy a new car. This is making used cars very popular in India. Want to learn more about car loans? Just leave a missed call on IndianMoney.com financial education helpline 02261816111 or just post a request on IndianMoney.com website. IndianMoney.com offers Free, Unbiased and on-call financial advice on Insurance, Mutual Funds, Real Estate, Loans, Bank Accounts and capital markets.

Buying a used car?

Today, buying a used car is very easy. Many car owners are selling their old cars and grabbing new car models. If you are looking to buy a used car, there are plenty around. There are many organized dealers in the used car market.

These dealers buy cars from owners, check them thoroughly, certify them and then put them up for sale. Dealers ensure that these cars are accident free and that proper documentation has been done. You are assured of the genuineness of the car and that the car has not been stolen. Organized dealers have a reputation to protect, which gives you a great used car.

Check the age of the car

The age and type of model of your car is very important when you apply for a used car loan. If the car model has been phased out, you will not get a loan. Always select a newer car model and a car which is not too old.

Check the interest rates offered by the Bank/Finance Company

You have identified a car you wish to buy. You approach the bank and the bank sends a valuation expert, to calculate the value of the car you wish to buy. This expert checks the condition of the car, the number of kilometers run by the car and the model of the car.

After evaluating the car, the bank/finance company decides whether to lend money to you, to buy the used car. Many Banks/Finance Companies charge an interest which is 3-5% higher than a car loan for a brand new car. The interest rate charged could be around 13-18% a year, for a used car loan.

Check the maximum loan amount

The bank could finance a maximum of 70% to 80% of the valuation amount of the used car, decided by the valuation expert. Find this difficult to understand….I’ll explain. You have decided to buy a used car from a citizen (owner of the used car), who wants INR 5 Lakhs for this car. You approach a bank for a used car loan. The bank sends a valuation expert who decides the car is worth only INR 4 Lakhs. The bank gives you 70-80% of the value of the car, decided by the valuation expert.

You get around INR 2.8 Lakhs to INR 3.2 Lakhs as a used car loan from the bank. You would have to pay the remaining amount of INR 80,000 to INR 1,20,000 as a down payment. You also have to pay the differential amount. What is this differential amount? The owner of the used car wanted INR 5 Lakhs for it.  The bank evaluator decided it’s worth only INR 4 Lakhs.  You still have to pay the difference of INR 1 Lakh (INR 5 Lakhs – INR 4 Lakhs) to the owner.

You pay the differential amount of INR 1 Lakh + Down payment around INR 80,000 to INR 1.2 Lakhs. You have to arrange this money yourself. The bank finances the rest of the amount.

Check the loan tenure

Banks give you a maximum tenure of 5 years, to repay the used car loan. Age and the condition of the car are very important, while calculating loan tenure. You have purchased a used car after 4 years of its first purchase (The car was purchased from the dealer 4 years ago).  A bank might have the condition that you must repay the used car loan, within 8 years of its first purchase. You have purchased a used car, 4 years after its first purchase. The bank gives you only 4 years to repay the used car loan.

Yes, you will soon be driving home your second-hand car. Second-hand car? For you it’s the first car. Time to get sweets and distribute among neighbors and friends. Be Wise, Get Rich.

Mr. C.S. Sudheer

Mr C.S.Sudheer is a management graduate. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.

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