Why Are Used Car Loans Expensive?

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Cars are a necessity these days, and purchasing a car isn’t a dream come true owing to the well-known presence of car loans. Car loans are loan amounts sanctioned by the banks and Non-Banking Financial Companies(NBFCs) of the nation to millions of customers day after day in helping them own a car. Used car or preowned car loans is one of the three types of car loans. The other two being new car loans and loans against cars. A Used car loan help customers avail an old/used car from another customer and not directly from a car dealership, unlike a new car loan. The used car loans are relatively expensive as opposed to new car loans.

Used car loans, as stated, are designed to fund used cars. And as used cars are bound to be of low quality compared to new cars that are straight from the manufacturers, banks and financial institutions are sceptical about funding for the whole expense. Therefore, the rates of a used car loan are relatively higher than the new ones. Additionally, the risks an old car might face in the future is more than what a new car might. Also, the history of the old car cannot be fully ascertained, which makes the collateral not entirely reliable. Hence, the expense of costing a used car loan is higher than old car ones.

A car loan has simple processing, and the loan disbursement is done within several hours of the application’s approval. However, to avail the loan, an applicant must meet certain eligibility criteria and have all the required documents with perfection.

The eligibility criteria of a used car loan

A used car loan applicant should be in the age range of 18 years to 65 years in most banks and financial companies. Although, a few lenders demand a minimum age of 21 years to sanction the loan. The applicant must be a working professional with a stable job for at least two years. Salaried employed(private and public sector), self-employed individuals(private and public limited companies, partnerships and individual businesses) and co-applicant(joint application). The minimum salary of the applicant to avail a used car loan is Rs 200000 per annum. A CIBIL score is a three-digit number indicating the applicant’s loan repayment capability. A high-value score, preferably above 750, is required to take out a used car loan.

The required documents of a used car loan

ID proof: A government-authorized document verifying the identity of the applicant is required for ID proof. It could be a PAN card, Aadhar card, voter ID, driving license or passport.

Address proof: A gazetted document verifying the official place of residence of the car loan applicant is required for address proof. Either of the following can be submitted as address proof: PAN card, Aadhar card, voter ID, driving license or passport.

Income proof: An authorised document stating the monthly or annual income of the applicant is required for income proof. ITR, form16, salary slips or a document stating the profit of the business for self-employed applicants.

Bank statement: The bank account statement of the applicant for the past 3 to 6 months. The demand varies from one financier to another.

The features of a used car loan

The loan amount sanctioned for a used car loan depends on the ex-showroom price of the car. The loan to value ratio of a used car loan is a maximum of 80%, and therefore, the banks and financial companies grant up to 70%-80% of the car’s value as the loan amount. The loan term or tenure of a used car loan varies from 12 months to 84 months, with an interest rate starting from 10% per annum. An EMI calculator can be used to calculate the interest rates of the bank or NBFC. For instance, searching for car loan EMI calculator SBI on google, one can calculate the interest rates of a used car loan depending on the loan amount and tenure.

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