What to look for in a used car loan

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Sumit Garg, co-founder and general manager of Luxury Ride, a used luxury car showroom in India, says many buyers have chosen to buy used cars instead of new ones because of Covid-19. They feel safer when they commute in their own vehicle.

Therefore, before deciding to buy a used car, there are a few crucial steps you need to look at, especially around the financing and documentation process.

Select the vehicle type, make and model: The first step is to classify the type of vehicle that you want to buy. Amit Kumar, Head of OLX Autos India, said, “If this is your first time buying a used car, an entry-level car is the right choice for you, especially if you are on a tight budget. Ownership of cars has decreased from 7 to 4 years; So if you are buying a used car for the first time or are planning to do so in the future, you can start with an entry-level vehicle and gradually convert to a larger car in a few years.Used cars have to be stuck to a reasonable offer that includes the purchase price and annual maintenance costs .

“There are many online platforms where you can compare cars within your budget to get a good deal. In general, you should be willing to add up to 10% extra add on your budget when you buy a more expensive car that suits your needs, “said Kumar. Keep track of the age and condition of the car you intend to get because banks may not be willing to provide a loan if the vehicle is more than 2-3 years old. ”Factors such as the number of kilometers driven, the user profile, the location, accidents or changes to the vehicle, etc. are checked When buying a used luxury car, you can always ask about the service history and the odometer, “said Garg.

Once you’ve decided on a car, look for a lender who can help you finance your used vehicle. “Companies involved in the sale of used vehicles typically partner with various fintechs and banks to help buyers get funding quickly,” Garg said.

When opting for a used car loan, you should try to cover a large part of the cost yourself as this can save a lot of money on the total purchase value of the car compared to taking out a used car loan.

So if you decide to get a used car loan, you should weigh the following considerations:

Check loan offers carefully: These days, it is relatively easy to get a used car loan from banks, NBFCs (Non-Banking Financial Firms), Fintech platforms, and retailers. But before you step into any loan offer, compare banks’ interest rates to see if they offer a fixed or floating rate.

Kumar said, “In general, a fixed rate is useful as it helps you avoid fluctuations in the rate. Also, be aware of any additional fees or charges and whether or not the bank or NBFC approves the used vehicle you have selected and whether or not prepayment flexibility is offered as an associated cost.

The interest rates on used car loans tend to be slightly higher than those on new cars. Garg said, “The interest rate can change with the buyer’s credit history, vehicle type, customer profile, and so on. Currently, used car loan rates start at 10%, while new car loan rates start much lower at 7.5%. Lenders can charge a processing fee that can range from 1% to 3% of the value of the car. “

However, you can compare a pre-approved personal loan and a used car loan, as a personal loan is often cheaper than a used car loan. In addition, a personal loan could be relatively easy to obtain and have lower processing fees.

Documentation: You have to check all the necessary documents such as vehicle registration (RC), insurance, clearance certificate (NOC) and environmental pollution certificate (PUC).

You will also need Forms 29 and 30, which work together to report the transfer of vehicle ownership to the Regional Traffic Office (RTO). “When buying a car, both forms were submitted to the RTO. This process must be completed within two weeks of purchasing the car, “said Kumar.

If the RC of the car has a mortgage from a financier (that is, you’ve mortgaged your car to a bank until your car loan expires), the seller must repay the loan amount, get the NOC and stamped Form 35 from their bank, and NOK share that with you. Also, check to see if the seller has an e-challan pending. If so, it must be paid for before the car is sold to you.

“If you are buying an interstate car, ask the car seller or owner to obtain a NOC from the registering state so that you can re-register the car after receiving the NOC,” Garg said.

Always make sure that you have the insurance policy transferred in your name from the seller immediately after purchasing the car.

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