Home / Money / Personal Finance /  Things to check before taking a pre-owned car loan

The most significant factor in favour of buying a pre-owned car, that is, a second-hand car, during the pandemic is affordability. Moreover, these cars can be bought at a lower investment of at least 10-15% when compared with new ones.

Sumit Garg, co-founder and managing director, Luxury Ride, a showroom in India for second hand luxury cars, says that due to covid-19, many buyers were opting to buy pre-owned cars instead of new ones. They feel safer using their own vehicle to commute.

Hence, before deciding to purchase a pre-owned car, you must look at some crucial steps, especially around the financing and documentation process.

Select the vehicle type, make and model: The first step is to classify the type of car you would like to purchase. Amit Kumar, head, OLX Autos India, said, “If you are a first-time buyer of a pre-owned car, then an entry-level car would be an apt choice for you, especially if you have a tight budget. The ownership period of cars has declined from 7 years to 4 years; hence if you are buying a pre-owned car for the first time or plan to do so in the future, then you could start with an entry-level car and gradually upgrade to a larger car in a few years." While budgeting for a pre-owned car, one must stick to an appropriate range, including the purchase price and annual maintenance cost.

“There are many online platforms available to compare cars within your budget to get a good deal. As a standard rule, you should be willing to extend your budget by up to 10% if you get a car which is priced higher but meets your needs," said Kumar. Keep a close eye on the age and condition of the car you intend to purchase, as banks may not be willing to provide a loan if the vehicle is more than 2-3 years old. “Factors like the number of kilometres driven, the user profile, the place of usage, accidents or modifications done on the vehicle, etc., must be checked. One can always ask for the service history and odometer records while purchasing a pre-owned luxury car," said Garg.

Once you choose which car you want to buy, look for a lender that can help finance your pre-owned vehicle. “Companies that deal in selling pre-owned vehicles usually have partnerships with various fintechs and banks to assist buyers in quick financing," said Garg.

While deciding to get a loan sanctioned on a pre-owned car, you should try to pay a large part of the cost yourself as it can save a significant amount of money compared with availing of a pre-owned car loan on the total purchase value of the car.

Hence, should one choose to avail of a pre-owned car loan, one should weigh the following considerations:

Examining the loan offers carefully: These days, it is relatively easy to avail yourself of a pre-owned car loan from banks, NBFCs (non-banking financial companies), fintech platforms and dealers. But before zeroing in on a loan offer, compare the rates of interest offered by banks to see if they provide a fixed or variable rate of interest.

Kumar said, “Generally, a fixed rate of interest is useful as it helps you avoid fluctuations in the interest rate. Also, look for any additional fees or charges, and whether the bank or NBFC approves the used car you have selected and whether pre-payment flexibility is offered or not as associated cost."

The interest rates for pre-owned car loans tend to be slightly higher than that for a new car. Garg said, “The interest rate may change with the buyer’s credit history, vehicle type, customer profile, etc. Currently, pre-owned car loan rates start from 10% onwards, whereas new car loan rates start much lower at 7.5%. Lenders can charge a processing fee, which can range between 1% and 3% of the value of the car."

However, you can compare a pre-approved personal loan and a used-car loan, as many times, a personal loan is cheaper than a used-car loan. Moreover, a personal loan could be relatively easy to avail and can have lower processing charges.

Documentation: One must check all the required documentation such as the car’s registration certificate (RC), insurance, no-objection certificate (NOC) and pollution under control (PUC) certificate.

Further, you will need Forms 29 and 30 that work in conjunction to inform the regional transport office (RTO) that vehicle ownership has been transferred. “When buying a car, both forms have been submitted to the RTO. This process has to be completed within two weeks of you buying the car," said Kumar.

If the car’s RC has a financier’s hypothecation (it means that you have pledged your car to a bank until your car loan gets over), the seller must repay the loan amount, get the NOC and stamped Form 35 from his bank, and share that NOC with you. Also, check whether any e-challan is pending with the seller. If yes, then it has to be paid before the car is sold to you.

“In case you are buying an inter-state car, then ask the car seller or owner to get an NOC from the state of registration so that you can re-register the car post receipt of NOC," said Garg.

Always ensure that you have transferred the insurance policy from the seller to your name immediately after purchasing the car.

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