The used car market in India has been growing at a CAGR of 15.2%. This has been possible due to excellent after-sales service, leading to the increased preference for used cars among consumers and not to forget, the organized community used car dealers. Additionally, the used car market has been helped by the availability of exclusive loans for pre-owned cars. But, be careful when you apply for a used car loan or you could end up making some of the common mistakes listed below:
- Not Doing a Thorough Research for Better Deals
Just because you are buying a used car, it does not mean you should accept the first loan offer that you come across. With access to internet at your fingertips and innumerable options for used car loans online, it’s important to do a thorough research before finalizing the loan. There are many online vendors providing options for varying loan amounts and tenures. You are the customer and hence you have the choice. Analyse all the available options for online used car loans and then make the final choice.
- Not Taking Time to Understand the EMI in Detail
The EMI of a used car loan is not a straightforward ‘Principal + interest’. The rate of interest and tenure of the loan are very crucial considerations for EMI. It also has several other components such as the penal interest, annual maintenance and EMI bounce charges. Take all these into account when calculating the actual EMI rather than just the interest rate. The best deal considering all the hidden components is what you are looking for.
- Not Checking Your Credit Score
The credit score is an index, which is generated considering your current financial status and historical financial data that is available with the bureau. Even if you have a lower CIBIL score and the banks deny funding you, there are other institutions that can fund you at a slightly higher interest rate. In any case, it is advisable to work on improving this parameter before considering a loan. You can improve this score by paying off any existing debts on credit cards.
- Opting for Lower EMI for a Longer Tenure
A longer tenure will surely get you lower EMIs, but you will end up paying much higher amounts as interest over this period of time. A shorter tenure will get you better savings, though it might push you to make higher payments every month. In the best scenario, your total monthly outgoing as EMIs should not exceed 30-35% of your income. Choose your tenure keeping your other financial commitments in mind.
- Not Analysing the Various Payment Options
If you have funds to pay for your used car in cash, especially if the interest you are receiving from your bank is lower than what you could end up paying as interest to the lender, the second option is to make a larger down payment and avail lower interest rates or shorter tenures on the loan.
Before you accept the loan and sign on the dotted line of the agreement, go through all the terms and conditions carefully. Seek advice from experts if you feel the need to understand any particular clause. This is important to avoid any hassle at a later stage.