Financial concerns may run rampant in your mind while wondering whether or not to buy a car. In such situations, a Used car loan is one of the most viable solutions to your dilemma. Opting for a used car loan requires you – the consumer – to cover only 20% of the vehicle’s actual market price. The rest of the amount falls under the car loan.
An important point to note here is the difference between a used car loan and a quick loan. While both are definite financial tools to facilitate your purchase of a second-hand car, a car loan is secured. It means that the vehicle you purchase is included in the collateral if you fail to repay your loan. On the other hand, personal loans are unsecured and do not require collateral. So, your car is not taken away in case of failure to repay.
Which factors influence a used car loan?
The interest rate must feature significantly in your decision on whether or not to take a used car loan. It can start at 14% and can go up to 18%. However, several factors influence the interest rate for your used car loan, and these are –
Debt-to-income ratio – Your debt-to-income ratio, in simple terms, is the value of the amount you owe or your debt against your income. If you owe a lot of money to the market, this ratio is high, and your chances of obtaining a used car loan are adversely affected. Usually, creditors prefer a low to moderate debt to adjudge whether you are creditworthy enough to be granted a car loan.
Size of the loan and down payment – The size of the loan and the amount of down payment you are willing to put forth matters. A higher down payment regardless of the amount paid will lower the interest rates going ahead.
Credit score – A credit score is a number assigned to you by the credit rating agency. It is determined through the number of loans you might have taken in the past, the amount loaned to you, your repayment history, and missed payments. A good credit score increases your creditworthiness and renders you a viable candidate to procure a used car loan.
Age of the used car – The newer the vehicle, the lower is the interest rate and vice versa. Interestingly, the age of the used car shares a direct correlation with the interest rate. The same does not apply in the case of new cars.
Tenure of your loan – It is directly proportional to the interest rate of your used car loan. The shorter is the tenure, the lower is the interest rate. At the same time, the higher is the EMI, and vice-versa.
Final thoughts
While personal loans may have lower interest rates, a poor credit score is likely to damage your chances of acquiring the loan. A personal loan may also seem like a quick loan. But in reality, the period for loan approval may vary from one lender to another. So, despite the high rates, used car loans can be obtained and repaid with ease.
An alternative option is the overdraft facility offered by financial institutions. It allows you to withdraw any amount at any time without worrying about repayment. You can always try and get a personal loan, but an overdraft facility offers more flexibility. Repayment includes only the interest rate on the borrowed amount, and banks do not levy additional charges if you make an advance payment.
Bajaj Finserv, one of India’s top private financial lenders, offers various financial solutions to overcome issues. A used car loan is one of them. To understand the concept of this loan and its aspects, get in touch with them and make relevant inquiries.