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Purchasing a new car is the second most important investment an individual may make, next to buying a home. Some may not be in a financial position to purchase a new car and hence decide to buy a used car. However, getting a used car loan is much different than getting a loan for a new car. Lenders tend to disapprove loans for car which have crossed 4-5 years. Besides, the rate of interest charged on the loan is higher compared to new car loans.
Follow the below-mentioned tips to finance a used car.
Improve your credit score
Most banks check your credit score before approving a used car loan. This is the first hurdle while shopping for auto loans with competitive rates. If your credit score is low, take measures to improve it. Make regular payments in a timely manner. Keep low balances on credit cards and pay off pending debts.
If your credit score is not high enough to get an approval, seek the help of a co-signor. A co-signor with a good credit score can land a low-interest loan.
Different lenders have different rates for used vehicle loans. Usually rates on used car loans is 4-6% higher than new cars. Hence, research the rates well and solicit quotes from several lenders before deciding on a particular lender. It may also be worth buying a different used car to the one you first found if the finance option unavailable is unattractive.
Take a short-term loan
The term for repayment of a used car loan should ideally be short-term. The main reason for a shorter term is the rapidly decreasing value of the car. At the end of the loan tenure, the worth of the asset may be lower than the amount paid. Besides, shortening the term of the loan will ultimately help you save money.
Make a larger down payment
Based on your budget, see what percentage of the car’s purchase price works best as a down payment. A smaller amount will result in larger monthly installments or an extended loan tenure. Instead, make an approximate 20% down payment as it allows you to choose a shorter finance term and help you save money in interest charges.
Apply for finance through a used car dealer
Most dealers finance any used car they sell, regardless of its age. Hence, chances of a loan getting approved by a used car dealer is greater than that of a direct loan lender. However, rates of interest offered by dealers are greater than interest rates of direct loan lenders. Hence, applying for a direct loan should be your first choice.
Make smart negotiations
Negotiate the price of the car if your research states that you are not being offered a fair price. Go through the list of fees associated with the deal to ensure you are not paying unnecessary costs. Once the deal is closed, refuse any extra add-ons like extended warranty, car accessories, etc. You can always purchase the extras later after you have researched pricing.
Used car market in India is growing rapidly along with the growth of new car market. Savings made on purchasing a used car can be substantial given that a car’s value drops in the very first year when it’s on road. Always research various used vehicle loan options before finalizing on a particular lender. Beware of scams and unwelcomed surprises like hidden terms and conditions in the loan agreement.
Know more about used car loans and their interest rates at Mahindra Finance.
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