A used car loan is given by banks and NBFCs to buy a second hand car. One can buy a luxurious car by taking a used car loan. The tenure for used car loan ranges from 5 to 7 years. Used car loan is a type of secured mortgage loan. Here the car, for which the loan is being taken, will be kept as mortgage to the lender until the loan is paid back in full.
Though taking a used car loan is super easy, you should consider following factors before applying for one.
Check your monthly budget for EMI
EMI means equated monthly installment. Before you take a used car loan, you should check your budget, as whether you can afford the monthly EMI or not. Before agreeing for loan, you should check your monthly income, financial obligations and anticipate future financial status. Accordingly you should choose an EMI plan which won’t burden your wallet.
Choose short term loan plan
Short term loan plan means short tenure loan. When you opt for short tenure know that you’ll have to pay higher EMIs. So every month a huge chunk of funds from your income will be going to pay back your used car loan EMI. For some it can be difficult to pay huge EMIs but remember, shorter tenure means you’ll have to pay less interest rate. So though you’ll be paying high amount, you’ll be saving equally huge on interest rate.
Check your credit score
Credit score ranges from 0 to 900. The ideal credit score to get a loan is considered from 750-900. Before you apply for a used car loan, make sure you have the ideal credit score or your loan application will be rejected. Some loan lenders may consider your loan application even if you have a credit score of 650 but you’ll have to pay higher interest rate. So check and make sure you have the ideal credit score to get the best used car loan deals.
Banks and NBFCs apply processing fees on used car loan applications while approving. The fees are approximately 1% to 2% of the total loan amount approved. If you have a good credit score and showcase a healthy relationship with the lender, you might be able to bargain the fees cost. The lesser amount of processing fees you’ll have to pay, the better.
Consider the prepayment charges
Prepaying a loan means paying it before its designated tenure ends. You can prepay the loan by making bulk payments over the course of the whole tenure. But here banks and NBFCs charge specific fees to loan borrowers when they prepay the loan. The fee differs from lender to lender and is taken considering how much bulk payment you are doing, the interest rate, remaining loan amount and tenure. So when you choose a loan lender and take a used car loan, consider what the prepayment charges applicable are.
Now that you know what to consider before applying for a used car loan, click here to check your eligibility!