When planning car purchase, one of the prime challenges that individuals face relate to the availability of finances. Many Indians have today thus shifted their car purchase goals from new models to used or second hand models. Also, not all such purchase decisions are driven by financial scarcity. Purchasing a used car that is in good condition with a long shelf life can also be considered a wise financing decision as it provides the same value at lower price. As one can avail some of the best vehicle models under the used car category, the means to fulfil your car ownership desire are not limited too. To support such aspirations, the financial market extends dedicated funding options like a second hand car loan.
When planning to buy a used car next, it can be wise to remain well-informed about all the details related to used car loans. So here, we bring about some of the crucial details about these loans, knowing all of which might do you good in making a wise borrowing decision.
What is a Used Car Loan?
A used or second hand car loan is a customised financing option that lending institutions provide to support the purchase of used cars for individuals. These are secured advances, with the second hand vehicle itself serving as the collateral assured through hypothecation as a guarantee of full loan repayment.
As collateral-based funding, these advances attract low rates of interest, thus proving affordable even with high financing value. Under the loan arrangement, the car so purchased is hypothecated to raise funding. During such hypothecation, the borrower keeps the possession of the vehicle for required use while the lender reserves the rights to sale of such vehicle.
Alongside, the borrower is required to make timely repayment of the advance throughout the loan tenure through EMIs set during loan approval. A borrower must complete repayment of the total loan liability to release the vehicle from lender’s hypothecation. In case the borrower completely fails to repay the second hand car loan in part or in full, the lender reserves the right to auction such hypothecated vehicle for loan recovery. Any additional amount so raised is returned to the vehicle owner.
LTV for Second Hand Car Loans
For any collateral-based advance, LTV or Loan to Value is a concept that heavily impacts the maximum loan availability for the borrower. For the purpose, lenders assess the current market price of the asset to be collateralised. Once such value is obtained, they set a percentage on that value based on the associated risks to refer to the total loan the asset owner can avail. LTV is thus a percentage expression of the asset’s current market value.
In the case of used car loans, LTV can go as high as 90% with some reputed lending institutions in the market. It means that if the car’s current market value stands at Rs.2 Lakh, the borrower can at max avail financing up to Rs.1.80 Lakh as a second hand car loan. The remaining 10%, i.e., Rs.20,000 needs to be met through down payment from the individuals owned finances.
When availing a used car loan, it is thus wise to be financially prepared for making the required down payment. Based on your eligibility and the car’s condition, the requirement for such down payment can increase, going up to 35%. You can work up on your eligibility to secure the loan at an LTV as high and down payment as low as possible.
Eligibility Requirements for Used Car Loans
The used car loan eligibility requirements are easy to meet. As both salaried and self-employed individuals can avail the advance, some criteria can vary based on the applicant’s occupation.
– For salaried individuals
As a salaried individual availing a used car loan, you need to be between 23 and 58 years of age with job stability of at least 1 year and minimum monthly income based on your city of residence.
– For self-employed individuals
Business owning professionals or non-professionals need to be between the age range of 25 and 70 years, with a business vintage of at least 3 years and stable income with necessary documented proofs.
Apart from these, both applicant types must be residing Indian citizens with a stability of at least 1 year. Further, although credit score is not a necessary requirements, it does you well to hold a credit score above 700 when availing a used car loan. It not only helps with minimum hassles in loan approval but also helps secure favourable terms on your loan.
When availing a second hand car loan, determine your affordability with the help of a used car loan EMI calculator. Also, use an eligibility calculator to determine how much you should apply for at max to receive easy approval of your loan.
Read also : Car Loan