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Government banks have cheaper rates for used cars, but most of them offer it to their existing customers. Private banks, on the other hand, give them through partnerships with dealers.

Private banks can offer customers preferential rates if they have a partnership with platforms that test and sell used car loans.

If a bank offers cheaper rates but lower LTV, it may not help borrowers looking for a higher loan amount
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If a bank offers cheaper rates but lower LTV, it may not help borrowers looking for a higher loan amount

The critical factor in deciding the lender for a used car loan is the loan-to-value (LTV) ratio. It is the percentage of loan a lender is willing to offer against the car value.

If a bank offers cheaper rates but lower LTV, it may not help borrowers looking for a higher loan amount. According to data from Paisabazaar.com, while Canara Bank offers the lowest rates, its LTV is up to 60%. Union Bank of India, too, gives the same LTV.

Suppose you are taking a loan for a used car that is costing you 5 lakh. At 60% LTV, the borrower will only get a loan of 3 lakh.

HDFC Bank, on the other hand, could offer up to 100% finance, and Axis Bank offers up to 85%. The country’s biggest lender, State Bank of India, offers up to 80% finance of the car value.

The rates for used cars are high as lenders view it as a risky asset. While the quality checks have evolved for the used car, lenders don’t entirely rely on third-party quality checks.

Many suggest that if the interest rate is 15% or more, the buyer can also explore taking a loan against securities or checking a top-up home loan. These loans will be available at a lower rate.

For any loan, it’s best to keep the tenure as low as possible and to take the minimum amount. Calculate the equated monthly instalment or EMI you can afford and accordingly apply for the loan.

(Do you have personal finance queries? Send them to mintmoney@livemint.com and get them answered by industry experts)

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