Used Car Loans: A step-by-step guide to secure loan for buying your dream car

Buying a car is a big financial decision, and not everyone can afford to pay the full amount upfront. That’s when car loans come in as a convenient option. A car loan, or auto loan, helps you purchase a vehicle by covering most of the cost, which you repay in equated monthly instalments (EMIs). This allows you to own a car without straining your savings.

If you are running short of funds, going for a second-hand car can be a practical choice since it’s budget-friendly. If you need financial support, a used car loan makes it easier to afford a pre-owned vehicle while repaying in convenient EMIs. Many banks and financial institutions provide these loans, though the terms may differ slightly from those for new cars.

What are Used Car Loans?

A used car loan is a type of loan that helps you finance the purchase of a pre-owned vehicle. Instead of paying the full amount at once, you can borrow money from a bank or financial institution and repay it in fixed monthly instalments, along with the interest amount.

Since used cars have a lower market value than new ones, lenders typically finance 70-90% of the car’s price, requiring you to make a down payment for the rest.

Interest rates on used car loans are often slightly higher than new car loans because pre-owned vehicles have a lower resale value.

The loan tenure ranges from 1 to 5 years, with shorter tenures leading to higher EMIs but lower overall interest costs. Before approving the loan, lenders consider factors like the car’s age, condition, resale value and the borrower's credit score.

If you are looking for a loan to buy a used car, availing a personal loan could be an affordable option. For instance, you can secure loans up to Rs 50 lakhs from eight lenders in a completely paperless process. These loans are available at a low interest rate starting at 10.5% per annum. You can secure the loan in three easy steps— finalise the loan offer, complete e-KYC and set up the EMI payment.

Differences between used car loans and new car loans

A used car loan and a new car loan serve the same purpose – helping you finance a vehicle – but they differ in several ways.

• Interest Rates: New car loans generally come with lower interest rates (7-10%) since new vehicles have higher resale value, whereas used car loans have slightly higher rates (10-15%) due to the risk associated with pre-owned vehicles.


• Down payment: Lenders finance up to 90-100% of a new car’s price, sometimes requiring zero down payment, while for used cars, they cover only 70-90% of the market value, requiring a higher upfront payment.


• Loan tenure: Loan tenures for new cars are generally longer, ranging from 1 to 7 years, whereas used car loans typically have shorter repayment durations of 1 to 5 years.


• Depreciation value: While new cars undergo rapid depreciation (losing up to 30% of their value in the first year), used cars depreciate more slowly, making them a cost-effective choice in the long run.


• Documents Required: Getting a used car loan involves more paperwork, including car valuation and ownership verification, whereas new car loans are processed more easily.

Who can apply for a Used Car Loan?

Eligibility for Salaried Individuals

• Must be a resident or Non-Resident Indian


• Age: 21-54 years


• Minimum 2 years of work experience


• Annual income of at least ₹2 lakh

Eligibility for Self-Employed Individuals

• Must be a resident Indian


• Age: 23 - 60 years


• Minimum 4 years of business continuity


• Annual income of at least ₹1.75 lakh

However, the eligibility criteria may vary depending on the lender.

Get Instant Loan Up To Rs.50L

How to apply for a Used Car Loan?

1. Check Eligibility - See whether you meet the lender’s criteria, including age, income, employment type, and credit score.


2. Compare Lenders - Research different banks, NBFCs, and financial institutions to find the best interest rates and loan terms.


3. Choose Your Car - Select the used car you want to buy, keeping in mind its age and condition, as lenders have restrictions on older vehicles.


4. Gather Documents - Prepare necessary documents like ID proof, address proof, income proof, bank statements, and car details.


5. Apply Online or Offline - Fill out the loan application form on the lender’s website or visit a branch to apply in person.


6. Wait for Loan Approval & Verification - The lender will verify your documents, check your credit score, and assess the car’s valuation before approving the loan.


7. Get Loan Disbursement - Once approved, the loan amount will be disbursed to the seller or dealer, and you can start repaying through EMIs.

Documents required to apply for a Used Car Loan

Lenders may ask for documents based on their requirements but here are the basic ones:

• Identity proof (Aadhaar card, PAN card, passport, voter ID, or driving license)


• Address proof (Aadhaar card, utility bill, passport, voter ID, or rental agreement)


• Income proof (salary slips and bank statements for salaried individuals, ITR and business proof for self-employed)


• Car documents (registration certificate, insurance papers, car valuation report if required)


• Passport-size photographs

Conclusion

Financing your dream car through an auto loan depends on your financial condition. With the advent of digital lending platforms, you can avail a personal loan to buy even a used car. It’s important to asses various car loan or personal loan offers to get the best deal.

You can explore multiple personal loan offers on the platforms like Moneycontrol app and website. The loans start at an interest rate of as low at 10.5% per annum and the lenders offer up to Rs 50 lakhs. The application process is 100% paperless and you can receive the amount in your bank within a few minutes to a few hours.