It would be an understatement to write that India has a thriving second-hand car market. In 2019, the used car market in India was valued at the whopping US $ 24.24 billion.
Throughout 2020-2025, the Indian used car market is expected to grow at an impressive CAGR of more than 15%. The number of used cars being sold in India had crossed 4 million way back in FY 2018.
Apart from the affordability of second-hand cars, another important factor which has driven the sales of is the availability of used car finance. The role of a credible lender while availing a loan for a used car is vital. One could interact with people who have taken used cars loan earlier. Or conduct secondary research to find out about online reviews regarding lenders. It is recommended to choose a lender who offers customer-friendly deals and is renowned for customer service.
Some other factors to compare could include processing fees, LTV ratio, prepayment charges, etc.
However, before taking a loan for a used car, one must consider the following factors:
Keep Down-payment Ready
In most cases, borrowers would have to fund 10%-15% of the used car’s price. So if the used car is valued at Rs 5 lakhs, the borrower would have to pay about Rs 50,000 to Rs 75,000 from his pocket. The rest would be covered by the loan. Higher the down payment, lower is the amount you would have to borrow. Therefore it would be a good idea to start saving up for the down payment a few months in advance.
Educate yourself about the loan disbursal process. Find out about all the documents which are needed along with the number of copies. You could keep these ready beforehand. You could also find out about the number of days it would take for the loan to be disbursed as it would help you to keep the seller informed and accordingly plan your finances.
The duration of a loan for a used car could generally run into a few years and there is an important financial commitment. Being aware of the approximate EMI amount which you would have to incur would be highly beneficial. It would help you to plan for managing your finances throughout the duration of the loan.
According to a popular thumb rule, your car loan EMI shouldn’t exceed 20% of your monthly income. So for example, if you are earning Rs 50,000 per month, your EMI could be Rs 10,000 or less. However, this is just one approach and if you are comfortable paying a higher EMI amount, you could do so. You could calculate the same by using online EMI calculators. It is quite likely that the lender you have chosen already has used car loan calculator on its website.
A prospective borrower must also learn about the various repayment schemes being offered by the lender. You might want to check whether the lender offers flexibility when it comes to repayments. You could calculate the revised EMIs using the used car loan calculator. Also, be aware of prepayment charges if any. Certain lenders may also offer the flexibility of making online payments through their websites or apps.
Lenders are likely to provide time-bound offers during festive seasons. Some of these offers could include concession on interest rates, waiving of processing charges, etc. If you an existing customer of a lender, you may want to ask for some special offers.
It is believed that the used car market will continue to grow as new cars would become expensive due to BS-VI era norms and also people started it as a new business. The emergence of dealerships that provide standardized customer experience for used car buyers would also play a role. The organized segment of the used car market is predicted to grow at an astounding CAGR of 22.8%. This bores well for customers, as this could lead to lenders offering competitive terms for borrowers.