Image showing car loan application, with new car keys and toy car

Used Car Loan: Everything You Need to Know

Sahaj Palla GUIDES Leave a Comment

Owning a car in the 1980s was an uncommon thing. Only a few could afford it then. In the 2000s, it was all about owning a brand new family car, but not everybody bought one. But in 2021, there’s a paradigm shift in how people buy their cars. Almost every family owns a car and many even two. What was once a milestone is now part of a routine upgrade: Mostly from a gearless scooter or a bike to a budget family car or used bigger car. Used car scenarios have also changed. People find buying them to be more profitable, both in terms of money and time. 

The rise in demand in the automobile sector led to an increase in the need for easy payment solutions giving rise to credit financing or loans. Thanks to this, buying new and used cars have become very simple and unchallenging. Almost every bank and private finances now offer loans with flexible EMIs and minimal documentation. Hence owning your dream car is easier than it was before.

What is a Used Car Loan?

Simply put, a used car loan is a car loan that we can get from financial institutions to buy a used car. The approved loan amount usually depends on the age and the health of the car as well as the valuation that the lender arrives at. The total tenure of the loan could range from 1-7 years. The rate of interest on the loan depends on two major factors – your credit score and the car itself. If your credit score is high your rate of interest would be better, while a lower score would mean a higher interest rate.

Hands on steering wheel

Getting a car loan is the best way to finance the car of your choice quickly. Since used cars are cheaper than the new car, the loan amount required would also be less. But this comes with its challenges. The rate of interest on a used car loan is higher than on a new car loan as used cars might be costing you less but it is of lesser value to the bank. Think the amount of loan you would be taking for a new car vs the one for an old car and the duration for which you would be taking the loan. To counter this and to make the loan worthwhile, banks charge high interests. Insurance cost, booking cost, and certain registration costs might not be included in the loan amount.

What is the benefit of applying for a used car loan?

Getting a used car loan is almost similar to obtaining a new car loan. It is simple and hassles free. When it comes to applying for a car loan the restriction is minimal. Anybody can avail, provided they have a permanent income to repay it. Car loans could be secured for a minimum of a year to a maximum of 7 years. The main benefits of a used car loan are:

  • Since the actual amount required to buy the used car is lesser than the new car, the loan amount necessary would also be less hence lower EMIs. Therefore it is immensely pocket friendly.
  • Flexible repayment tenures are provided by most financial institutions.
  • Some banks or non-banking financial institutions give up to 100% of the required loan.
  • Minimal paperwork with uncomplicated processing. You can do it online too.
  • Quick approval and disbursement with attractive interest rates.
  • Used car loans carry a lot of features and rebates like the new car loan, but the hassle to get it is much lesser.

How to Apply for Used Car Loan?

Anybody who wants to buy a car can apply for a car loan. The lending institution would look at the eligibility factor of the applicant. Salaried, self-employed, professional, or a business owner who has a regular income and is between the age of 21 and 65 years, with minimum payment capacity is eligible to get the used car loan. You can be or not be an Indian citizen. If you have a higher credit score, you have a higher chance of getting a better loan with a possibly lower rate of interest. Since the loan is for the car, the lending company will not need any other collateral as security.

Couple applying for a used car loan

A few points to consider while applying for a loan

  • When you decide to apply for a used car loan do thorough research on the banks and NBFCs that are lending loans.
  • Check out their payment process, tenure, and rate of interest. ROI for a used car is higher compared to a new car.
  • Visit the nearby branch of the selected institution or call customer care to check on loan details and the documentation process.
  • Fill the application form online or physically.
  • Furnish the following documents along with the form:
    • Passport-size photographs
    • Car valuation report
    • Photo-identity proof like Aadhaar card, passport, pan card, voter’s id
    • Address proof like voter’s ID, LIC policy, electricity bill, Aadhaar Card, driving license, passport, etc.
    • Signature proof
    • Income proof: Salary slip, form 16, bank statements, balance sheet, profit and loss account, audit sheet, etc.

Are there any hidden charges in used car loans?

One of the challenges that most credit applicants face is hidden charges. If you decide based only on the bank’s offer as seen online or in the bank’s brochure, then you might get a rude shock when you reach the final step of loan processing. Hence thorough research is imperative before deciding on the financing partner.

Most banks and private financing institutions charge processing fees, documentation charges, registration certificate collection, stamp duty, etc. If you plan to close the loan before the end of the tenure, then the foreclosure penalty will be levied. In case of delayed EMI payment, not only will your cibil score get affected, but also you’ll have to pay penalty interest. Some lenders charge an annual maintenance amount too. The safest option would be to visit the nearest branch or call the customer service of the lending institution and enquire about all the charges and EMI that you’ll have to pay.

Used Car Loan interest rates 2021

Various banks and NBFCs offer loans for a varying rate of interests and tenure. They also have their terms and conditions that determine how much loan your chosen car can get. While choosing the right banking partner- along with the tenure and rate of interest, check for the additional charges you will have to pay as a part of the process. This will help you in getting the best loan without any last-minute confusion.

Here is a list of top banks and financial companies that provide the best loans. Check out to find the apt service provider for you. Call your bank for any further details.

Lending Institution

Interest Rates

Lowest EMI Per Lakh For Max Tenure

Maximum Loan Amount

HDFC

13.75% - 16.00% (Rack Interest)

7 years

100% of market value

9.50% - 10.50% (CIC based rates will be applicable)

5 years

85% of on-road price

12.00%

5 years

80% of market value

6.50%

5 years

90% of market value

8.55%

5 years

70% of market value

10.40%

5 years

50% of market value

9.95%

5 years

75% of market value

10.40%

5 years

60% of market value

13.80%

5 years

75% of depreciated value

7.45%

3 years

70% of market value

10.05%

5 years

50% of market value

12.25%

5 years

60% of market value

8.55%

3 years

70% of market value

9.90%

7 years

85% of market value

10.45%

3 years

80% of market value

Cars have become a necessity rather than a luxury. Upgraded versions fitted with advanced technical specifications have also flooded the market, increasing the cost of cars and making car loans mandatory. You could buy the car of your dreams without depleting your financial reserves as it helps you to pay back quickly in flexible instalments. In the case of the used cars though the wait is less and the availability is quick, getting a car loan depends on its make and condition. But with minimal documentation and quick disbursal, applying for a used car loan is the best solution to own a used car of your choice.


Used Car Loans FAQs

Can a used car be 100% financed?

Almost every bank and NBFCs offer flexible loans for new and used cars with attractive interest rates. But conditions and eligibility criteria would change from one institution to another. A few banks don’t offer loans on cars that are older than three years. Some private financing companies give loans against collaterals too.

Only a select few lenders offer 100% financing, else most of the banks give only up to 80%-85%. Certain banks have refinancing options also that will allow you to borrow an additional loan over the approved loan for your chosen used car.

Why is the rate of interest high on a used car loan?

Banks don’t have much to gain on used car loans as the cars cost less and the duration for paying the loan is also short. Thus, banks charge a higher interest rate on used car loans to make a profit.

Can I get a used car loan if my credit score is low?

When going for a loan it is necessary to have a good credit score as the banks won’t mind giving you a loan. However, with a low credit score, banks consider you high risk and will offer a loan but at a very high interest rate.

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