Assess your requirements and compare options before taking used car loan
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The perception of people towards used car has undergone a lot of transformation in the last few years. Gone are the days when new car alone was the wish for us. With the passage of time and the fast changing consumer behaviour, search has become vibrant for a second hand car. Now-a-days, almost 2 out of three loan applications are submitted to the lenders for used cars. Additionally, a large number of people are selling their cars with a view to buy the new ones due to a series of launches in India during the last few years. With this, you have a wide range of options with regards to the availability of used cars in the market. To add fuel to the adoption of used cars,various organised dealers are there and are doing due diligence in sourcing, certification and selling of the cars. The dealers include Mahindra First Choice, Maruti True value, ToyotaU Trust, Automart India, Hyundai Advantage, etc. But before you go all out to buy the used car, get yourself acquainted with the process of obtaining the loan for the same.
Go for a relatively new car
Since value of car depreciates around 10-20% in the first year itself, it is advisable you pick the car that has been used for about 1-2 years compared to the one used for more than 4-5 years. You can get the finance for 1-2 year old car. But it would be difficult to get finance for a 4-5 year old car. Also, you need to keep on whether the car model that you decided to buy is phased out or not. If it is phased out, then you will struggle to get the finance for that car.
Assess your requirements
Moment you decided about the loan amount that you seek, then work out the tenure and accordingly check the monthly installments that you will have to pay. See whether the installments are affordable to you after seeing the existing income and making future forecasts of the same. Sooner you figure out these things, better it will be for you to shop for the used car loan.
Compare the options
You can choose loan for used cars from a range of options including HDFC Bank, ICICI Bank, State Bank of India (SBI), Axis Bank, Kotak Mahindra Bank, etc. Interest rate on used car is about 3-5% higher than those for a new one. Normally, interest rate on new cars ranges 10-12%, while for used cars it is around 13-17%. To help you in making an effective comparison, we have made a table below showing the interest rate, quantum of finance and processing fee from select lenders for used cars.
|Lender||Quantum of Finance||Interest Rate||Processing Fee|
|SBI||85% of car valuation||16.9%-17.15% per annum||Rs 450-9,100 plus service tax|
|ICICI Bank||80% of car valuation||15.5% per annum||2% of the loan amount or Rs 6,000 whichever is lower
|HDFC Bank||80% of the car valuation||11.4%-17.8% per annum||2% of the loan amount or Rs 5,200 whichever is lower
|Axis Bank||90% of the car valuation||14.5%-16.5% per annum||Rs 3,500-5,500
After you choose the lender, the next thing you will have to do is to arrange the documents for the processing of the loan. Lenders will ask for documents attesting proofs of your income amount, age, identity, residence, signature, as well as the valuation copy of the car. Document requirements, however, vary from lender to lender. You can read a sample of the documents, which are generally asked by lenders for used car loan, in the table shown below.
|Age Proof||Passport/PAN Card/ Voter ID card, Photo Driving License with birth date/Photo ration card with DOB/Employer certificate/ID/School/College Leaving Certificate||Passport/PAN Card/ Voter ID card, Photo Driving License with birth date/Photo ration card with DOB/Employer certificate/ID/School/College Leaving Certificate|
|Identity Proof||PAN Card/ Voter ID/Passport/Driving License, photograph||PAN Card/ Voter ID/Passport/Driving License, photograph|
|Income Proof||Latest 3 month salary slip, Form 16||One previous year ITR and Adv. Tax Challan of current year showing the payment of higher tax compared to the previous year
|Address Proof||Latest Telephone Bill/ Electricity Bill/Property Tax Receipt/Passport/ Voter ID||Latest Telephone Bill/ Electricity Bill/Property Tax Receipt/Passport/ Voter ID|
|Sign Verification Proof||Passport/Photo Driving License with birth date (laminated, recent , legible)/ Credit Card Statement with Credit Card Copy/Banker's Verification, Copy of Margin money paid to bank||Passport/Photo Driving License with birth date (laminated, recent , legible)/ Credit Card Statement with Credit Card Copy/Banker's Verification, Copy of Margin money paid to bank|
|Application Form with Photograph||Yes||Yes|
|Car Valuation Report||Yes||Yes|
|Loan Agreement Duly Signed with RTO Set (Post Sanction/Pre-Disbursement Documentation)||Yes||Yes|
|Standing Instruction (SI) Request / ECS Form / Post Date Cheques (PDCs). Security Cheques required for SI and ECS (Post Sanction/Pre-Disbursement Documentation)||Yes||Yes|
Now you have all the information with you to avail the option of used car from a particular lender based on the loan amount you seek and the cost factors attached to it in the form of interest rate, processing fee, EMI, etc. But check out the after effects of EMI payment on your finance before availing the loan for a second hand car.
(Updated on : 22nd October, 2016)