First-car buyers in India often look out for used cars purchase to get their hands on and be well-adapted to the country’s driving conditions. The primary reason behind this can be said to be that used cars may better endure the losses than the new ones. Further, affordability is another reason that nudges people into purchasing used cars instead of their newer versions.
These cars definitely come a lot cheaper than new cars, which brings car ownership well under affordability for many Indians with marginal incomes. Given that the used car market is expanding, finding the desired used car model in a good working condition is not much of a challenge today. Further, the availability of financing at affordable second hand car loan interest rate makes vehicle ownership easily accessible too.
Several other loan features make availing a second hand car loan a sound financing proposition for the purpose of vehicle financing. However, there are a host of factors one must know that can impact the cost of the loan, leading to a high or low interest rate levy. Keeping a check on these factors and applying for the loan accordingly can help secure the best rates on your used car loan. Here’s a look at them one by one.
Factors That Affect Your Second Hand Car Loan Interest Rate
Apart from a few, the factors that impact the second hand car loan interest rate can be remarkably different for the borrower than those for a new car loan. It is best to be aware of them well in advance so that you do not end up paying unnecessary high interest for your borrowing. Check out some of the common factors that may impact these rates.
1. Age of the car to be purchased
When it comes to used car purchase, the older the car the lesser value it commands, making it cheap for an individual to purchase. However, such a low cost comes with a price too as an older car often witnesses fast depreciation than a new car. As it can erode the vehicle’s value significantly in a short duration. Lenders often prefer cars that are not more than 2 years old for the purpose of financing.
Hence, as the risks remain high for an old car, the second hand car loan interest rate applicable on the advance will be high too. It is thus best to choose a car that is not much older, and preferably remains within the 2-year age threshold.
2. Car model selected
The model of your car defines its future selling prospects. For instance, car models that are fairly new in the market usually remain in high demand. It thus means that they can be easily purchased and sold if the need be. From the perspective of used car loans thus, a car that commands high saleability always remains preferable than a car that may take time to sell.
Based on this, the risk for the financing recovery is determined and the interest rate is set to cover for such risk. Thus, a new car model with high saleability is likely to be financed. At a competitive rate than an old car model that does not hold much demand in the market.
3. Number of previous owners
The total number of owners that the car has been passed down to also affect the car’s selling price. It is because based on the ownership transition, the resale value of the car is determined. Ideally, lenders consider cars that have not had more than 2 previous owners suitable for the purpose of financing. In case it has been bought and sold for more than twice, although it is possible to finance. Such a vehicle’s purchase, it is likely to attract a high rate of interest, thus proving costly.
Alongside the number of owners, the total distance that the car has covered till date is also an aspect to examine before selecting the right vehicle for the same reason. Each car comes with a shelf life, meaning it can be used for a certain number of years or for a set distance. Which are approximately assessed. The nearer a car is to its total distance coverage capacity. The higher its depreciation and the lower its resale value stands, thus impacting the rate of interest as well. Hence, it is wise to go for used cars that have not been used thoroughly for a long distance coverage overall.
4. Repairs or replacements the car underwent
Another aspect that can critically impact the second hand car loan interest rate levy is the number of repairs or replacements that the vehicle has undergone. With each repair or replacement that a car undergoes, its market value declines. Thus, even though cars that have been repaired multiple times or had their components repaired will come easy on the pocket when purchasing. Lenders may be apprehensive of financing such cars for a simple fact that they would fetch a low resale value.
Further, repairs or replacements undertaken also increase the risk of future damages manifold. Which further puts the risk to the overall condition of the vehicle. It is hence bes to go for a used car that is next to new and has not undergone multiple repairs or replacements.
5. Number of insurance claims made
Insurance claims on the car can be for several reasons. Right from repairs and replacements to third-party claims, and damages, to accidents. Each insurance claim made also brings down the resale value of the vehicle. As such claims are not appreciated for the purpose of reselling the vehicle or financing its purchase. You may thus look out for a car with low to no insurance claims. For the purpose of financing its purchase to secure low rates on your used car loan.
Along with these factors, the overall condition of the car also adds to its resale value. Thus contributing to its financing affordability. For instance, a high overall vehicle depreciation can be the reason for failing to secure a low rate. Further, you may look for various aspects of your borrowing profile as well. And improve on them to secure the best second hand car loan interest rate for enhanced affordability.