With offices and institutions reopening around the world and people resuming their old routine of commuting to work and other places, the need for personal transportation can be felt more than ever before. But as you might already be aware, buying a brand new vehicle might not be a sound financial decision at the moment, owing to uncertainties in the job market and the need to save more for healthcare. Plus, new vehicles undergo immense depreciation in the first year itself.
On the other hand, getting a pre-used vehicle will not only be much lighter on your pocket, but will also save you additional time and effort in terms of maintenance. Along with this, in India, you can get a loan on a used car in no time.
Thus, in this article, we will share with you 6 tips to follow if you want to secure an affordable loan to purchase a used car.
- Know Your Credit Score
One of the first things you need to take into consideration when applying for a loan on a used car is your credit score. Your credit score is essentially a numerical value assigned to you by credit rating agencies after considering your past financial history. Most credit rating agencies in India take into consideration four main factors to determine your score. They are:
- The total amount of credit you have utilized in the past
- The total amount of loans you have taken in the past
- The total number of timely repayments you have made
- The total number of payments you have missed
Taking all these factors into account, you are assigned a score on a certain scale, and the higher your score is, the easier it will be for you to get approved by the lender.
- Request Quotes From Lenders
Once you are aware of your credit score, the next step is to start approaching lenders for a quotation. These days, most financial institutions disburse used car loans, and thus, all you will need to do is approach them either online via their website or visit their branch office.
Most lenders have a readily available portfolio of the standard loan amounts they offer, based on the make and model of your used car, so this step should be pretty simple. However, make sure that you are not only looking at the loan amount being offered, but also at the interest rate, tenure, down payment requirement and more.
Along with this, one of the most important aspects to remember while applying for a loan on a used car is not to share your credit score information with multiple lenders as multiple hard enquiries can be treated as negative behaviour and can lead to a decline in your score.
- Negotiate With the Lender
Once you have finalized a lender based on your assessment, it will be time to share your credit score details and start the negotiation process. Most first time borrowers are not aware of this, but all lenders have a certain percentage of markup on their loan offers, on which they are willing to negotiate. This can be either via an increased loan amount, decreased rate of interest or longer tenure.
However, in order to make sure that the negotiation is going in your favour, you need to have a good credit history, so that the lender views your offer as a potential asset and not a loss-making liability.
Along with this, one trick you can use to turn the negotiation in your favour is to increase the amount of your down payment, as it will essentially indicate that you have the required repayment capacity and will most likely not default on your payment obligations.
- Keep the Tenure Short
Most first time borrowers, especially when it comes to a loan on a used car, are of the opinion that the longer the tenure, the better it is. However, this is not true.
If you want to enjoy the maximum benefit of availing a used car loan, you should always make it a point to keep your tenure as short as possible. There are two significant reasons to justify this; first, when you have short loan tenure, the interest rate charged will be less, and thus, you will not burn a hole in your pocket. Second, lenders generally offer very competitive rates of interest along with a higher loan amount for short term loans, as they can generate quick profits.
- Pay Other Fees on Your Own
One of the most common mistakes first-time borrowers make is that they apply for their total expenditure on the used vehicle as a loan amount. However, if you want to make sure that your application gets approved sooner, you should only apply for the actual cost of the used car as the loan amount, and pay for the rest of the expenses in cash.
There are two reasons to justify this. First, it will significantly decrease the total loan amount you have applied for, and thus, save you money in the long run in terms of cheaper interest rates and shorter tenures. Second, you can negotiate better with the dealer and get a cheaper deal when you pay for parts of it in cash.
- Apply for a Secured Loan
Last but not least, as with all other lending instruments available in India, a loan on a used car is also available in both secured and unsecured forms. If you want to increase the chances of getting your application approved, one of the best methods to follow is to apply for a secured loan.
In this case, you will need to pledge an asset or collateral of equal or greater value as security for the loan, and in most cases, your application will be approved without a hiccup.
Getting a pre-used car in 2021 can save you several hours in terms of commuting to work and other places. Plus, you will be able to avoid public transportation modes this way, and stay safe against the coronavirus. And this will not cost you a bomb. So, go ahead, apply for a loan on a used car today, and get yourself the convenience you deserve.