Everyone loves to have a car for driving around the city, but not everyone can possess it. Being one of the most expensive commodities, not everyone can hope to have the funds for buying a new car. However, used cars offer the same utility at a much lower cost. Yet, used car loan is not something you can choose blindly. There are factors that play an important role in deciding whether used car financing is the best option for you or not. Here are the things you must keep in mind:
1) Car loan interest rate
It would be a mistake to ignore the interest rates simply because they are compulsory. Second hand car loan interest rate can range between 13 to 20 percent, since every lender decides its own rate. As these rates are also subject to frequent changes, it would fall upon you to research well and come up with the best deal. Car loans interest rate is usually lower than other loans like personal loans, so there is a strong incentive there.
2) Processing fee for used car loan
A certain amount exists as a fee for processing the used car loan. However, it is also quite complicated. Sometimes the processing fee is fixed, while at other times it can be a certain percentage of the loan amount. Occasionally the lender also adds service tax on the processing fee. Thus, the processing fee can significantly affect the car loan rates. You need to know the nature of processing fee before you seek a loan from the lender.
3) Amount for used car loan
Unlike most loans, used car loans do not completely finance your investment. An officer from the bank/lender first assesses the car you want to buy and sets a valuation for it. The bank will then provide you with a maximum of 70-80 percent of the amount assessed by the officer. If the seller has set a price higher than this, then you would have to pay it from your pocket. So, if you do not have any extra cash with you at the moment, then used car loan might not be a good idea.
4) Loan tenure
Generally, the loan tenure is of 5 years, though exceptions exist. However, there is one thing you must keep in mind: the age of the car affects the loan tenure. Longer loans are generally not granted for cars that are significantly old or in a very bad shape.
5) Credit Score
Another motivation to go for used car loan is the credit score. Credit scores are absolutely necessary in case of unsecured loans like personal loans. However, second hand car finance is secured and thus do not require a credit score. Thus, if you defaulted in some past loan repayment and have a bad credit score, used car loans can always rescue you. A detailed car loan comparison would give you a better picture about your options.
Overall, used car loan is one of the better options you have out there to have a car at your disposal. Once you understand the factors that play a key role in the financing, you would be able to take a more informed decision.