While the lockdown slowly lifts, the threat of the pandemic still looms large. In this situation many buyers with limited budgets are opting to buy a used car instead of a new car. By using their own vehicle to commute, they feel safer.
However, there are several things that one needs to keep in mind while buying a used car.
1. Type of Car
The first step is to identify the type of car you would like to purchase and its availability. If the car you want fits in your budget, you should also visit the dealership and physically check the internal and external condition of the car.
2. Availability of Finance
Once you are sure you can afford the car, then you can start looking for finance. Lots of financing options are available for used cars. Banks and other non-banking financial institutions cater to individuals looking to buy used cars. Online car aggregator platforms also have partnerships with various fintechs & banks to assist in quick financing, which can be explored.
3. Valuation of the car
There are many factors to take into consideration when one is valuing the car. This includes the number of kilometers driven, the user profile (personal or commercial use), the place of usage (Cars from flood-prone areas may not be preferred), accidents or modifications done on the vehicle and clear title of the car, etc. Hence it is important for you to understand how the price of the car has been derived keeping all these factors in mind. One can always ask for service history & odometer records. Usually good dealers will always help you avail that.
4. The right loan amount
Once the value is decided, lenders expect a certain amount of the estimated value of the used car to be paid as down payment. Banks typically would fund up to 80-85% of the amount. However, at AU Bank in certain segments we have also gone up to 90-95% LTV. It is important to keep a right balance between own contribution & financing options.
5. Rate of interest
The rate may change with vehicle type, credit history, customer profile etc. Interest rates on used car loans are a tad higher than new cars. Currently, used car loan rates range between 11% and 18%, whereas new car loan rates start much lower at 7.50%. A processing fee is also charged and it ranges between 1% and 3% of the value of the car.
6. Tenure of loan
Generally, used car loans have lower loan tenures of max 3-4 years for lower age vehicle than a new car loan, which can go for as many as 5-7 years.
7. Check all required documentation
These need to be checked and completed before the deal can go ahead:
# Registration Certificate (RC): RC has all the vital information about the car, including its chassis number, engine number, and date plus place of registration and should mention Owner serial on RC/hands transfer. The registration certificate needs to be transferred to your name.
# Insurance: You can opt for a fresh insurance policy and choose the one that you want, and you may be able to negotiate a better price. If the vehicle’s owner and you agree to transfer the insurance policy to you, make sure the paperwork is in order, the policy’s expiry date, premium payment, etc. is in order.
# No Objection Certificate (NOC): If the car has been registered in another state or if the car has been purchased on a loan by the previous owner, NOC is necessary. This is issued by the Regional Transport Office (RTO) that is required for the re-registration of the vehicle in the new owner’s name.
# Pollution Under Control certificate (PUC): It is an essential document that certifies that a given vehicle’s emissions are within the limits prescribed by the Central Motor Vehicles Act, 1989.
8. Repayment structure
As interest rates on used car loans are higher than the new cars loans, it may make sense for an individual to clear off the loan as soon as possible. This will help to reduce overall interest burden. In that case one needs to enquire about repayment fees if repaid early.
There are many options available when you go in for a used car loan. However, keep in mind that once you do avail of the loan, be responsible to borrow only as much as you can pay back and be regular with your payments. This goes for both used as well as new car loans.
(By Bhaskar Karkera, Chief of Wheels, AU Small Finance Bank)