The pre-used car market in India is set to grow exponentially at a CAGR of 15.10% from FY2023 to FY2028. The increasing demand for pre-used cars can be attributed to their affordability. Moreover, the availability of Pre-owned Car Loans has also made it easy to finance the purchase. A Pre-owned Car Loan is a viable credit option that enables you to purchase your desired car without denting your savings.
Before proceeding with the Pre-owned Car Loan application, you must consider crucial terms like Car Loan rates. Securing competitive second-hand Car Loan interest rates is imperative to ensure the cost of borrowing does not affect the finances.
Tips To Get Competitive Pre-Owned Car Loan Interest Rate
To make borrowing affordable, you must follow the mentioned tips and fetch a lower pre-used car loan rates from the lender.
∙ Improve credit score
Credit score plays a significant role in determining the interest rate charged on the sanctioned amount. A credit score is a numerical summary of your financial behaviour and creditworthiness. Credit utilisation ratio, debt repayment history, etc., affect the credit score. If you have a lower credit score, lenders will be sceptical regarding your repayment potential, which can lead to higher interest rates. This is the reason why you should try to improve your credit score.
A higher credit score will portray you as a low-risk borrower. Lenders can be assured that you will clear the EMI payments on time and thus charge a lower interest rate. You can improve your credit score by paying off existing debts and clearing bills on time.
∙ Compare lenders
Before availing of a pre-used Car Loan, you must compare multiple financial institutions and their offerings and choose the best bank for a Car Loan, the one extending competitive loan terms. Choosing the right lender is extremely important. Besides assessing the interest rate, you must also analyse the hidden charges and other loan terms and conditions. Even a slight change in the interest rate will significantly impact the loan expenses.
You can easily compare different lenders online from the comfort of your home. Just visit their website and go through their offerings. Assess the reviews of the previous clients as well. This will help you make an informed decision.
∙ Opt for shorter loan tenure
The loan repayment tenure also influences the pre-used Car Loan interest rate. If you wish to reduce the interest outgo, it is always advised to choose shorter loan tenure. Though borrowers have to pay higher EMI after choosing shorter tenure, the overall financial liability of the loan reduces. In addition, when you choose shorter loan tenure, the lender’s financial risk reduces, which is why they may offer a lower interest rate.
You must opt for longer loan tenure if you cannot manage higher EMIs. Maintaining a balance between the EMI payments and tenure is very important. You must analyse your requirements and repayment potential before choosing a loan tenure.
∙ Pay a higher down payment
Higher down payments can help you obtain competitive interest rates. It also reduces the amount you pay as interest over the entire loan tenure. Lenders generally disburse up to 90% of the car value; you will have to pay the remaining amount as a down payment. You can lower the EMI burden if you make a higher down payment.
Lenders will consider you to carry less financial risk if you initiate a higher down payment. It highlights the borrower’s financial stability. On the other hand, making smaller down payments may prompt lenders to levy higher interest rates. Hence, you should try to gather substantial money and make a larger payment upfront.
∙ Consider a co-applicant
If you have a substandard credit profile and urgently need a pre-used Car Loan, you can consider applying for the credit option with a co-applicant having a better credit profile. The co-applicant will share the repayment responsibility as two individuals are involved in repaying the borrowed amount. Therefore, lenders will be likely to charge competitive interest rates.
∙ Negotiate with the lender
If you are an existing financial institution customer and have a good working relationship, you can negotiate with the lender. A healthy credit score and stable income status will give you an upper hand in negotiating favourable interest rates and loan terms that will help you manage the loans better.
Besides negotiating for the interest rate, you can also negotiate for prepayment, repayment terms, and hidden charges. Before striking a negotiation, you must also conduct market research and know the interest rates other lenders offer. This will help make you an informed decision.
∙ Look for seasonal offers
Most financial institutions introduce lucrative schemes, offer better service terms, and charge affordable interest rates during the festive season. Availing of a pre-used Car Loan at that time can prove highly beneficial. It can help you save a considerable amount of money which you can use to fund other expenses.
You can also fetch a nominal interest rate on new cars with low mileage. Lenders even consider the age and condition of the car before levying any interest rate. You will have to bear a higher interest rate if the model of the car is extremely old. In addition, if the vehicle has some mechanical issues, lenders will likely charge higher interest rates. Besides knowing the tips mentioned, you should also be careful while choosing from fixed and floating interest rates to ensure you have the best deal as per your suitability.
Conclusion
Second-hand cars are no longer looked down upon as they have emerged as a cost-effective alternative. To save a significant amount on the cost of borrowing, as a prospective borrower, you should compare lenders and opt for one offering competitive second-hand Car Loan interest rates. Besides focusing on affordable interest rates, it is essential to know the parameters that influence the Car Loan interest rate and plan accordingly for a pleasant borrowing experience.