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Home / Money / Personal Finance /  Ways to consider financing your second-hand car purchase
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The pre-owned (used or second-hand) car market is seeing a lot of traction these days. Most car companies have their own pre-owned divisions, and several financial institutions are offering car loans at lucrative rates. While some non-banking financial companies (NBFCs) even offer zero down-payment schemes, it is important to check for other types of loans  before purchasing a car.

Pre-owned car loans: You can get a pre-owned car loan from banks, NBFCs, or even fintech platforms. However, before availing such a loan, it is better to compare the interest rates and check if the lenders  offer fixed or variable rate of interest.

Manish Chaudhari, president and chief of staff at Poonawalla Fincorp Ltd, said that interest rates on loans for used cars, typically, have a slightly higher premium as the asset risk increases in case of a used car.  Currently, pre-owned car loan rates start from approximately 10% onwards, whereas loan rates on new cars are lower at about 7%. Interest rates may also change based on the buyers‘ credit history, vehicle type, etc. 

Gaurav Aggarwal, director of Paisabazaar.com, said, “Lenders also use their valuation mechanism after factoring in the age and model of the vehicle. This process increases the possibility of arriving at lower values for used vehicles than the sale price quoted by the seller, thereby resulting in a lower loan amount. The lenders also tend to put in several restrictions on the tenure for used car loans. Hence, these limitations and restrictions make pre-owned car loans an inefficient instrument for financing used cars." 

Personal loan: You can also opt for a pre-approved personal loan to buy a car.  Experts say those planning to finance their used car purchases through pre-owned car loans should also check the personal loan offers available on their credit profile. Personal loans are often comparatively cheaper. Depending on their credit profiles, prospective buyers can get bigger loan amounts, longer loan tenures and lower interest rates . 

Home loan top-ups: Existing home loan borrowers can opt for top-up home loans to finance their new car as well as used car purchases. “Depending on their residual loan tenure and outstanding loan amount, availing a top-up home loan can help them avail bigger loan amounts for longer tenures and lower interest rates," said Aggarwal. 

Mint take: Buyers now have the choice of opting for either a pre-owned car loan, personal loan or even a top-up on their existing home loan. However, one should ensure that the loan amount  is based on certain factors. These include the price of the used car and its affordability, and the equated monthly instalments (EMIs) that buyers are comfortable with. A higher  contribution towards purchase of an used car will lower both the loan amount and the monthly instalment that needs to be paid.

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