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Common Mistakes to Avoid When Availing Personal Loan for Used Cars

  • Highlights

  • Not researching all lender options thoroughly

  • Applying for a loan when you have low credit score

  • Choosing a longer tenor loan to lower your EMIs

  • Not reading the loan document carefully

Emergence of organized players in the market, growing preference for used cars and improved after-sales service are translating into a 15.2% CAGR of the Indian used car market. It is expected to reach $75 billion by 2023, according to a recent study. Slashing of GST rates for second-hand vehicles, coupled with easy availability of personal loan for used cars, have also catalysed the growth of the country’s used car market.

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Purchasing a used car, in such a favourable scenario, has become easier with instant finance. Several lenders offer personal loans for used cars at varied interest rates. However, there are some mistakes which you need to avoid before availing such loans.

Settling for the first offer without adequate research

Most buyers, in the hurry of availing a personal loan for second-hand vehicle, tend to settle for the first offer available. However, a thorough research would give you a holistic picture of various offerings. Non-banks like Bajaj Finserv, for instance, offer personal loan financing for used cars with great features including high loan amounts and flexible tenors. Take your time to compare loan offerings from different lenders, before making the final choice.

Not understanding various EMI components

A used car loan EMI consists of the interest amount, annual maintenance charges, penal interest, EMI bounce charges, among others. Hence, don’t factor in only the interest rate as the EMI component. You should consider all the associated charges and hidden costs to seal the best deal. Use a personal loan EMI calculator to gain insights into the EMIs to be paid.

Personal Loan for Used Cars

Applying for a used car loan when you have a low credit score

Your credit score is a three-digit score that reflects your creditworthiness. While you can avail a personal loan for a second-hand car on a low score, the terms and conditions might be more stringent. On other hand, good credit score can get better terms on your personal loan for used car. Check your credit score and take measures to improve it before you apply for your personal loan.

Additional Read: 5 Habits That Can Help You Maintain a Good Credit Score

You can check your credit score for free.

Choosing a high tenor to lower EMIs

While a longer tenor might reduce your loan EMIs, it will increase the interest outgo. On the other hand, a short tenor might push up your EMIs, but will result in significant savings in the long run. The table below highlights this fact.

Loan amount Tenor Rate of interest Total interest payable Total payment (Principal + Interest) EMIs per month
Rs.5 lakh 2 Years 5% Rs. 26,456 Rs.5,26,456 Rs.21,936
Rs.5 lakh 4 Years 5% Rs. 52,704 Rs.5,52,704 Rs.11,515

Ideally, your EMIs shouldn’t be more than 30-35% of your monthly income. Choose a tenor that helps you comfortably pay off the personal loan without impinging on other financial goals.

Not looking for customizable options

Financial needs vary for everyone and therefore it’s essential to look for customizable options when it comes to loan tenor and applicable interest rates. Talk with multiple lenders to understand the possibility of flexible loan repayment options.

Bajaj Finserv offers personal loans for used cars with a flexi loan facility that allows you to pre-pay the loan when you have a surplus of cash at minimal charges.

Additional Read: How To Apply For A Personal Loan For Used Cars Online

You can also check your pre-approved loan offer to avail financing instantly. Before signing on the dotted line, read the loan document carefully. Go through each statement and seek a professional’s help, if required.

The content of this document is meant merely for information purposes. The personal loan features mentioned in this article are subject to updation, completion, revision, verification and the same may change materially based on policy revisions. For more details, please visit our Personal Loan terms and conditions page here.

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