Common mistakes to avoid when availing a personal loan for used cars
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Common mistakes to avoid when availing a personal loan for used cars

  • Highlights

  • Not researching all lender options thoroughly

  • Applying for a loan when you have low credit score

  • Choosing for a high tenor loan to lower your EMI

  • Not reading the loan document carefully

Thanks to the emergence of organized players in the market, growing preference of consumers to buy used cars, and improved after-sales service, the Indian used car market is expected to reach USD 75 billion by 2023, growing at a CAGR of 15.2%, 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 catalyzed the growth of the country’s used car market.

However, there are some mistakes which you need to avoid while applying for such loans.

Settling on the first offer without adequate research

Most buyers, in the hurry of availing a personal loan for second-hand vehicle, tend to settle in on 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, etc. 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 an insight on the EMIs to be paid

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 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 with various third-party portals or via credit information companies such as TransUnion CIBIL, Equifax, Experian, and High Mark.

Choosing for a high tenor to lower EMI

While a longer tenor might reduce your loan EMI, 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 loan without impinging on other financial goals

Not looking for customizable options

Financial needs vary with each individual 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 which allows you to pre-pay the loan when you have a surplus of cash at no extra cost.

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.

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