Applying for a car loan Photo Credit - istock
The popularity of second hand car market has been constantly on the upswing. While it is simple to get a car loan for a new vehicle, are you searching for loan options for a pre owned car? Or, are you confronted with the question, is it worth taking a loan for a second hand car? Let us explore here, the various aspects of used car loans.
Getting a loan for a pre owned car is now much easier compared to the same some years ago. The easy availability of loans for used cars and a wide range of buying options have all helped the pre owned car segment rise exponentially in the recent past.
An overview of Used Car Loans:
The loans offered for pre owned cars are slightly different from those offered for new cars. The basic difference between new car loans and pre owned car loans is that the age of the car and its model play a key role in decision the financial intricacies of the loan. Interest rates of loans offered for used cars on an average cost 3-4% more than that for a new car. The loan offered for purchase of second hand cars usually ranges between 60% and 75% of the on road price of the vehicle.
Things to Consider before Applying for a Pre owned Car Loan:
There are some essential things to consider before availing a used car loan. The primary point of consideration is the age of the car and its model. If the car model has been phased out by the manufacturing company, chances of getting a car loan get reduced substantially. As an unwritten rule, the age of the car and the tenure of the loan should not exceed seven years. That means that, if the car is four years old, one could get maximum loan tenure for three years while if the car is three years old, the maximum loan tenure can be extended to four years. Pre owned car loans are usually not offered to vehicles older than 4 to 5 years.
Once the buyer has shortlisted the car including its make and model, the bank or NBFC sends its valuation expert to calculate the present on road value of the car. A margin of Rs. 25000 for registration, insurance and accessories is kept while assessing the final on road estimated price of the used car. Once the bank’s valuator determines the price of the car, the bank takes a final call on the amount of loan.
Example: If a Honda City 2011 model is valued at Rs 5 lakh, one can get about Rs 4 lakh, or 80%, as loan amount. If the same car is a 2009 model the loan amount could well be over 70% or a maximum of Rs 2.8 Lakhs.
The interest rates for used car loans are on an average 3-4% higher than the interest rates charged for new cars. So if the interest rates for a new car loan range between 11-14 %, a used car loan would cost you anything between 14-16 %. Use our Car Loan EMI Calculator to see how much it costs for you to procure a used car loan.
Applying for a Used Car Loan:
When it comes to used cars loans, banks offer a slightly lower rate than that offered by NBFCs. The final rate of interest is usually negotiable and depends on the user’s personal relationship with bank and a strong credit history. Used car loans come with a processing fee charge of 0.5% of the loan amount which is the same for new car loans. The down payment for used car loans is usually fixed at 15% of the assessed value of the car as a bare minimum. For those curious about prepayment charges in case one wants to close a car loan for a used car, it is easier to waive off the prepayment penalty in case of used car loans compared to loans for new cars.
| Bank/Non Banking Financial Company | New Car Loan | Used Car Loan | Processing Fee |
| HDFC | 10.75% – 12.50% | 15.75% – 18.25% (Up to 12 months)
15.75% – 18.25% (24 months) 15.25% – 17.75% (36 months) |
0.5% of loan amount |
| SBI | 10.75% | 17.25% | 0.5% of loan amount |
| ICICI Bank | 11.50% – 14.25% | 15.5% to 18% | Rs.2500/- to Rs.5000/- |
| Canara Bank | 10.70% | 17.5% | 0.1% of loan Amount |
| Axis Bank | 11% | 16.5% to 18% | Rs.3500/- to Rs.5500/- |
Get a customized car loan quote from Bankbazaar.com.