Used Car Loans in India: Everything you need to know

Have you test-driven several vehicles to choose your dream car, but cannot proceed further due to budget constraints? Well, believe it or not, but the majority of the cars bought in the Indian market are financed through various banks and financial institutions. In this regard, Therefore if you have a car in mind, getting a car loan can help you purchase the car.

While getting your preferred pre-owned car financed can be easy, actually getting it done can become complicated. From documentation and eligibility to choosing a partner bank and available interest rate, there are a lot of factors involved. In this article, we will look at everything that is required to get a used car loan in India.

Before applying for a used car loan

Image of filling car loan application form

1. Finalize your budget

There is no limit to the loan amount you can apply for, as long as you qualify for the loan. The first thing to do before applying for a used car loan is to finalize a budget which will help you narrow down the cars you will consider buying. Once finalized, you can go ahead and select the vehicle that suits your needs and requirements.

2. Know the terms of a used car loan

It is known that getting a new car financed fetches a lower interest rate than a pre-owned vehicle loan while also financing a lower amount of the total value. Financing agencies usually provide loans up to 85-90% of your pre-owned car’s value while in case of new vehicles even 100% finance is sometimes offered.

However, if you keep these factors in mind, you can make these terms work for you rather than hinder you. With the lower price of used cars, the actual value for applying for a used car loan could work out to be more affordable than a new car loan in the long run.

3. Plan your expenses 

Most buyers often decide in a hurry and end up shelling out substantial EMIs every month. However, planning your finances smartly and intelligently can help you save your hard-earned money. Therefore, before visiting a pre-owned car dealer, one must scrutinize their financing options and compare the offered interest rates with those offered by banks and private organizations.

Another mistake often made by hasty buyers is that they get lured towards a “low-cost” EMI deal, but in reality, they end up paying a much higher amount in total. Using loan calculators can give you a good indication of the expected payment schedule for your loan amount. This will vary between loan providers and the interest rates they provide you. Thus, it is best to focus on the total cost of your car by calculating the money involved in the dealer charges, taxes, insurances, down payment, and interest and loan repayment schedule.

Once you have decided which vehicle you are willing to bring home, the next big step is to apply for a car loan. With several banks and financial institution now offering online application services, getting a car loan has become even easier than ever before. So if you have your heart set on a pre-owned car, you can go ahead by checking your used car loan eligibility and comparing the interest rates offered by various banks.

Applying for your Car Loan

1. Check your eligibility

Various lenders have provided for different used car loan eligibility criteria for customers to avail a car loan. Therefore, the first step to avail a car loan is to check whether or not you are eligible to do so as per the lender’s criteria. This can be done by visiting the nearest branch or website of your preferred bank.

Applicant’s age, minimum salary requirements, residential and employment status, financed vehicle details are some of the terms and conditions set out by lenders. For example, if you fall into the category of a salaried person, you may be required to be employed for at least two years to be eligible for a car loan.

Couple being advised about car loan

2. Choose your Financing Agency, Loan Amount and Loan Tenure

Since the rate of interest for a car loan varies depending upon the Bank or NBFC you choose, it is important to choose your loan provider wisely. Lenders offer loans for both new as well as pre-owned vehicles. With regard to financing a used car purchase the interest rates usually range between 10 to 17.5%. Various financing agencies charge a different processing fee, which adds up to your overall cost.

Therefore, when choosing your financing agency keeping in mind the overall cost of the loan. Another factor upon which your interest rates are based is your credit score. A high credit score may fetch a lower interest rate, depending upon which financing agency you choose.

Once the financing agency is decided, then plan out your expenses to decide the loan amount you wish to seek, and within what tenure you are capable of repaying your loan. In case you have already taken out some of your savings for the down payment, you would require a lesser loan amount. You must also be careful while choosing your loan tenure as it will affect your overall car cost. Generally, loan tenures fall in the bracket of 1 to 7 years.

3. Provide your Documents

Once you have chosen your financing agency, loan amount and tenure, the next step is to provide them with relevant documentation to avoid the rejection of your loan application. Again, different financing agencies have different documentation requirements for used car loans. However, some of the essentially required documents are:

  • Duly Filled Application Form
  • Aadhaar card/passport/pan card/driving license/voters ID Card, etc. as identity proof
  • Telephone bill/electricity bill/Aadhaar card/ration card/life insurance policy/passport/voters ID Card/driving license, etc. as address proof
  • Latest salary slips, form 16/ITR slips/bank statements/balance sheet of firm/company account etc. as proof of income depending upon the type of employment.

Additionally, the bank may require applicant’s photographs, invoice/rate list, signature verification proof, credit score etc. as documents essential to avail a car loan.

4. Receive loan amount and visit your dealer

Once your duly filled loan application and provided documents are verified, financing agencies will scrutinize your credit score and approve your loan to disburse the loan amount in your account. One thing to remember here is that many dealers have partner tie-ups with loan providers allowing for easier disbursement of loan. Once received you can visit your dealer and bring home your pre-owned vehicle.

5. Repay on time, to avoid penalties.

Once you have brought your dream car home, do not forget to repay your car loan as per the decided repayment schedule to avoid hefty penalties and interest accumulation. At any time in the future, you can complete the loan payments with one payment by initiating a loan foreclosure as per the policies of the financing agency.


Getting a loan has become even easier than before, but there are still some complicated factors that need special attention. It is important that you consult a financial expert before taking a used car loan to get a loan that suits your needs and is affordable for you.

Spinny has partnered with leading banks to offer seamless, loan application, documentation, approval and disbursal. Choosing to finance your loan with Spinny partners, allowing you to buy your Spinny Assured car with up to 85% of the value financed at rates starting from 12.5%.

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