Advantages And Disadvantages of Car Loan For Used Car in India

While loans make it easier and more affordable to own a pre-owned or used car in India, it also comes with some important factors to consider about.

These factors while choosing a car loan for user car include additional charges like processing fees, depreciation of value, as well as EMIs.

Based on such factors there are a few advantages and disadvantages that you may get while availing these loans.

Advantages of Car Loan for Used Car:

● The loan amount can be particularly high for secured used car loans. In the upper limit, the loan amount can range from Rs. 50 lakhs to even around Rs. 1 Crore (in rare cases).

● Seamless and convenient process for application.

The approval of the application depends on the applicant’s CIBIL score and location of residence.

● After approval, the funds are allocated to the borrower quickly.

● Flexible and even custom EMI plans: The borrower can choose the EMI plans depending upon their affordability. This also helps in deciding the loan amount and tenure. Furthermore, the EMI is debited automatically from the account.

● The interest rate can be low if the borrower has a good credit score or if the loan is secured.

● In cases of unsecured loans, the lender does not require details on vehicle conditions and records. The lender may need the RTO details, registration details, and proof of ownership (for unsecured loans).

● In cases of secured loans, the car becomes the collateral for the lender. So, if the borrower defaults on the loan (i.e. is unable to pay the loan), then the lender will use the car to finance the rest of the loan).

● Meanwhile, for unsecured loans, no such collateral exists. The lender cannot claim ownership of the car even if the borrower fails to repay the loan amount.

This is also the reason behind unsecured loans having higher interest rates compared to secured loans.

Disadvantages:

● The loan amount is only a percentage of the car’s market value. The lenders look to have a profit margin, in case they need to sell the car to procure the loan amount (if it defaults). Most loans only carry up to an 80% value of the vehicle.

● The borrower needs to pay for higher EMIs owing to increased interest rates of an unsecured loan.

● Cars are always depreciating. So, a used car will have lost much of its value by the time the loan gets paid off.

● The borrower's CIBIL score will be affected if they fail to repay the loan at any given time.

Things to remember about Car Loan For Used Car:

● Application to several banks/financial institutions is looked down upon as it lowers than CIBIL cool.

● Loans need to be compared from different lenders.

● Best deals in terms of purchasing the car as well as the bank’s interest rates, come during the festive season and year-end.

● To have the best possible EMI rates that cannot be also switched on PDA.

● Smaller loans will not allow the credit score to be affected negatively.

Having bumper-to-bumper car insurance is often a required criterion for unsecured loans.

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