Used car loan are lucrative given the smaller loan amount hence, the more negligible interest, processing fees, and hidden charges. The paperwork might also be faster when a small principal amount is in consideration.
The idea of using now, paying later is very lucrative. Cars define the social status of an individual in India. So you may feel like a king when driving the car out of the dealership, but hefty EMIs will make you feel otherwise. History presents us with many examples where wrong loan choices caused great adversities.
However, second-hand car loans can be deceiving. An undeniable fact w is that buying a car is more often a social symbol than a necessity in India. An interested buyer is more to make unforgivable financial mistakes by giving in to the compulsion of owning a car. Another essential thing to keep in mind is that the prospective applicant for the loan is from a weaker economic stratum.
Thus hefty second-hand car loan interest rates might take an actual toll on the family’s financial condition. It is vital to keep note of some basic rules when opting for a second-hand car loan.
Check your credit score and FOIR
Credit score and FOIR are essential parameters with which the current financial support system works. The credit score is basically a report card for the applicant based on previous credit history.
Check the credit score when deciding when applying for a loan. A credit score is also fundamental as it determines the second-hand car loan interest rate. Higher the credit score lesser the interest rate.
FOIR is a fixed obligation to income ratio. It calculates how much money the applicant has in his bank account after the expenditure on essential services or utility. Different institutions have different limits on how much FOIR should be.
Recommended: About 5 Mistakes Everyone Should know with Gold Loan
Shop around for the best deal
There are two sources of finance when it comes to car loans. First, major financial institutes such as banks and Fintechs; second is the dealership itself. Many prospective buyers fall into the pitfall of readily available finance at their dealership. Second-hand car loan interest rates can vary hugely with different institutes.
Don’t fall into the trap of readily available finance. Carefully analyze the various vital points of loan agreement such as interest rates, hidden charges, processing fees, collateral, and foreclosure clauses. Take the help of an expert you might know to understand better what kind of finance would be best for you.
Loan repayment tenure
A fundamental and rampant mistake that people make is making their repayment tenure much longer than it needs to be. Longer repayment tenure seems lucrative given the smaller amount of money paid per EMI.
However, you may pay a considerable amount of interest than what is needed, given that the second-hand car loan interest rate is generally higher than the average car loan interest rate.
No down payment
It is very tempting for a person who has wanted a car all his life to drive a car out of the dealership without paying a single penny. However, no down payment means you will have to pay a tremendous amount of money later on.
It is always better not to give in to your compulsion and take a step behind. There often are hidden charges associated with no down payment. Re-evaluating the loan terms and conditions would be of great value at this point.
Be prepared
It is not uncommon for loan applications to be rejected. This could be due to various reasons, the most common being the credit score and FOIR ratio. There are numerous ways to improve credit scores, which are available online.
As for the FOIR ratio, the careful analysis might be required on the need for the loan and reduction of obligatory costs. Lastly, if major players in the financial market refuse the loan application but a minor one offers it, be very cautious as there might be substantial hidden costs to this financial undertaking.
Are you thinking of applying for a used car loan? If yes, be prepared and get a thorough understanding of all the points mentioned above. These can be very handy when you are applying for a second-hand car loan. Same as you can consider for Gold Loan to make your life easier.
