How to get a loan to buy a used car?

A good second-hand car can be bought with the help of a used car loan. Used car loans are provided at attractive interest rates. Check here!

How to get a loan to buy a used car?

Yes. You heard it right. You can buy used car by availing of a loan. But, there are several things you need to know before you can have such a loan. These loans are provided at interesting interest rates and have a repayment tenure of up to five years. You can also get a used car loan with a co-applicant. There is no need for collateral or security required for a used car loan as the vehicle acts as the security. The insurance costs and depreciation rates are lower as compared to a new vehicle.

Here's how to get a loan for a used car:

Check on lenders

Go to a lender, either offline (by visiting its branch office) or online, to apply for the pre-owned car loan. Some online research will help you to get the best possible interest rate. Check the offers on a wide range of used cars at the lender's online marketplace for used car loans. You need to compare the deals across lenders on a wide range of pre-owned cars. To get a loan to buy a pre-owned car, some lenders may need to make a 20-30 percent down payment.

Finalize the pre-owned car

After shortlisting the lenders, get details such as the tenure you want, the amount you are eligible for, the rate of interest, calculate your equated monthly installments (EMIs), and processing fee. Many lenders charge a fine in case of foreclosure of loans in part or full, then check with the lender about prepayment charges.

It is important to note that interest rates on pre-owned cars are usually higher with a lower loan-to-value (LTV) than a new car loan. The amount of loan you get depends on the valuation of the car arrived at by the lender. Many lenders charge a fine in case of foreclosure of loans. Some banks offer flexible repayment terms. Often, the loan amount will be significantly less than the costs at which you plan to buy the car. While the loan period of pre-owned car loans can go up to five years, the real tenure sanctioned by lenders varies on how old the vehicle is.  

Your eligibility for a pre-owned car loan will be higher if the LTV ratio is lower and you could negotiate with the lender for a longer period of time. But, in such a case you may have to make a higher down payment while buying the car.

Submit the documents

You will have to submit documents to the lender to enable it to process your loan application and can be completed online. Also, you can visit the branch and submit documents physically. These are the lists of documents:

Salaried Employees

  • Last 3 months' salary slips
  • Income tax returns (ITR) documents or Form 16

Self-employed Individuals

  • Computation of income for the last 2 years, balance sheet and profit and loss account,
  • ITR documents of the last 2 years
  • TDS Certificate (Form 16A) / Income Tax Challans / Form 26 AS for income declared in ITR, Clearance Certificate / IT Assessment.
  • Business proof: Service Tax Registration, Registration Certificate, among others

Documents

  • Application form
  • Passport-size photographs
  • Car valuation report

Address proof

You can submit any of the mentioned documents as proof of address:

  • Voter’s ID
  • LIC Policy
  • Electricity Bill
  • Aadhaar Card
  • Driving License
  • Ration Card
  • Passport

Identity proof

You can submit any of the mentioned documents as the identity of proof:

  • Aadhaar Card
  • Passport
  • Driving License
  • Voter’s ID
  • PAN Card

Income proof

You can submit any of the mentioned documents like income proof:

  • Profit and loss account
  • Balance sheet
  • Audit sheet
  • Form 16
  • Salary slip
  • Bank statements

Take possession of your car

Once the loaner approves the loan, the vendor will get the money in his/her bank account within a few hours. You can deposit the down payment amount to the seller and take possession of the pre-owned car.