With expenses rising with
inflation rate, many people think twice before making any financial purchase.
This would include buying a new car as well. Many people now choose a
second-hand car for a few days, with demand slowly rising over time.
Many banks and financial
institutions offer financial support in the form of attractive car
loans in order to support this demand. While it may be a simple affair,
there are a few things to consider before you opt for this loan:
Lower loan-to-value:
Compared to a brand new vehicle,
the loan to value a second-hand car is normally low. The range normally ranges
from 6 to 75 percent, with a brand new car ranging above 90 percent for an
exhibition room price or 85 percent for an on-road price. For such a vehicle, a
minimum down payment would be about 15 percent of the car's value, which can be
costly. While the bank or financial institution can fund 100% of the value of
the car, it depends solely on the customer's profile and the bank's
relationship. This only happens in rare cases, though. However, the loan
provider will send a valuation expert to evaluate the vehicle when purchasing a
used car. The car loans will be sanctioned accordingly once the verification
has been completed. At the same time, consideration will also be given to the
insured declared value also known as the car's IDV. In this case, the loan is
given up to 85% of the lower of the two values.
Less tenure, more interest:
The older the car is, the shorter
the loan tenure is, with the current market rates and proceeding. The only
condition that applies to all providers of car loans is that the car's age
should not exceed 10 years. Most banks have a 5 to 7-year repayment tenure.
This in turn has an impact on car
loan interest rates. The interest rates levied on car loans for used
cars are 3-4 percent higher than those levied on new cars. This is because the
tenure of new car loans can last longer than 10 years compared to the tenures
of used car loans.
More detailed documentation:
The process of documenting used
cars is more detailed than new cars. Usually, only the know-how of your
customer (KYC) and income documents are required for new cars. The applicant
would have to provide documents with the used cars showing proof of transfer of
ownership. Once verified, banks would then proceed to offer a credit line that
could be limited to branded pre-owned car dealers offering the loan to buyers.
This also works for buyers who buy from the seller directly and sign an
agreement for the total payment account after which the seller will transfer
the funds.
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