How to get a loan to buy a pre-owned car
Did you know that you can get a car loan to buy a second-hand/pre-owned/used car?
That is right, you can fund the purchase of a used-car by availing a loan. However, there are several things you need to check before you can get such a loan. For instance, you should find out whether the lender is willing to provide a pre-owned car loan. “The used car you’re purchasing needs to be eligible for financing by the lender. For example, some lenders may not finance used cars older than three year informs Adhil Shetty, CEO, Bankbazaar.com.
Here’s how to get a loan for a pre-owned car.
1. Visit lender
Visit a lender, either
online (via lenders’ website) or offline (by visiting its branch office), to apply
for the pre-owned car loan. Also, to get a better rate of interest, do proper
research before applying for a pre-owned loan. Check the deals on a wide range
of used cars at the lender’s online marketplace for used car loans. For
example, you may check HDFC Bank’s pre-owned car loan section on its website,
similarly you may also check for State Bank of India, ICICI Bank too. Some
lenders may also ask you to make a 20-30 per cent down payment to get a loan to
buy a pre-owned car.
Shetty said, “Most banks and non-banking financial companies (NBFC) offer loans to buy pre-owned/used cars. The terms and conditions and charges vary from one lender to another. Select lenders may offer you up to 100 per cent financing but most will offer you up to 80 per cent. Therefore, you need to be ready with the margin money.” Shetty further said, “Interest rates charged by banks are likely to be lower than those charged by NBFCs.”
For instance, State Bank of India’s interest rates on pre-owned cars are in the range of 9.2-10.5 per cent, and for HDFC Bank it is 13.75-16 per cent. And for an NBFC like Tata Capital, interest rate for pre-owned car loans start from 15 per cent. (These rates are as on September 22, 2020).
2. Finalise the pre-owned car loan
Discuss with your lender the details of the loan such as the amount you are eligible for, the rate of interest, processing fee, the tenure you want, and your equated monthly instalments (EMIs). If you think that you may want to prepay or foreclose the loan in part or full, then you should ask the lender about prepayment charges.
3. Difference between new car loan and used car loan
Sahil Arora, Director, Paisabazaar.com said, “Used car loans usually come with higher interest rates and lower loan-to-value (LTV) ratios than loans for purchasing new cars. As the loan amount of used car loans also depends on the valuation of the used car arrived at by the lender, the loan amount can be significantly lower than the price quoted by the seller. Moreover, while the loan tenure of used car loans can go up to 5 years, the final tenure sanctioned would also depend on the age of the car.”
It is easier to get a loan with a lower LTV ratio because in such a case you have to make a higher down payment when buying the car.
4: Submit documents
You will have to submit documents to the lender to enable it to process your loan application. Here is the list of documents you will need to provide the lender:
- Photo ID with age proof (like PAN card, Aadhaar card, passport, driving license)
- Signed application form with 3 passport sized photographs (Varies Bank to Bank)
- Residence proof: Valid passport, voter id card, driving license, postpaid utility bill (gas bill and electricity bill), updated passbook or bank account statement, notarized and registered rent agreement
Bank statement of salaried/self-employed individuals for the last few months:
If the applicant is a salaried individual
- Last 3 months’ salary slips
- Form 16 or income tax returns (ITR) documents
If the applicant is a self-employed individual
- Balance sheet and profit and loss account, computation of income for the last 2 years.
- ITR documents of last 2 years
- Business proof: Registration Certificate, Service Tax Registration, among others
- IT Assessment /Clearance Certificate, Income Tax Challans /TDS Certificate (Form 16A) / Form 26 AS for income declared in ITR.
Here’s why your loan application may get rejected
Despite having all documents, Amit Kumar, Head, OLX Autos India said, “Lender can reject your loan application if your credit score is poor (past default, not enough credit history). Also, if the car is not part of the eligible/approved car list of the banks /NBFC.” Kumar further said, “If the lender (banks /NBFC) is not satisfied with your documents and you are not able to provide additional documents to support your loan request and their field investigation report on you is negative then, too, the lender can reject your loan application.”
Here are the following important things that a pre-owned car buyer must know to get the loan approved by the lender.
- At the time of buying a pre-owned car, please check that all original documents are in place with the seller.
- If lender’s hypothecation (when an asset is pledged as collateral to secure a loan) is mentioned in Car Registration Certificate (Car RC) then the seller is required to repay the loan amount, get No Objection Certificate (NOC) from his banker and share the NOC with you.
- Also, check whether any e-challan is pending against the seller. If yes, then check whether it is it is paid before selling the car to you.
- In case, you are buying an inter-state, car than negotiate with the car seller to arrange for NOC from the state of registration so that you can re-register the car post receipt of NOC.
Kumar said, “In case, you are buying a car from a used-car dealer, then insist for a GST Invoice (even though it is not mandatory for car registration, it is still advisable).”
5. Take the possession of your car
Once the loan amount is approved by the lender, the seller will receive the money in his/her bank account within few hours. Along with this, you can pay the down payment amount to the seller and take the possession of the pre-owned car and drive away.
What else you can do
Yes, you can get a car loan to purchase to a used or a pre-owned car. However, you should check with lender about the interest rate and features of a personal loan as well, is Arora’s advice. This is because basis the credit profile of the loan applicant, the loan amount, interest rate and repayment tenure available on personal loan might very well beat those available in the form of used car loans.
Pre-owned car loan and personal loan interest rates offered by a few leading banks and financial services firms.
Visit online financial marketplaces to compare various personal loan interest rates offered by other lenders.
Here is another option: Arora said, “Those with existing home loans can also avail top-up home loans from their existing home loan lenders to finance the purchase of a used car. The interest rates of top-up home loans would most likely be around the rates charged for their home loans. The loan tenures too can go up to 15 years depending on the residual tenure of their home loan.”
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