Given the financial instability induced by the current pandemic, getting a used car loan is the best option to own your dream car without touching your savings or investments. It is the best way to manage your finances in times of financial difficulty. You can get up to 100% of your vehicle’s market value as a loan. However, it is worth noting that your loan amount depends on the value of your vehicle and its features.
Depending on your income, credit score, and current financial obligation, you can secure low used car loan rates and flexible tenure. Getting an affordable interest rate allows you to repay your loan amount without any defaults. Also, you have the option to use a used car loan EMI calculator to determine your affordability.
Here are the top things you must know before applying for a used car loan:
- Credit score
Your credit score is one of the crucial parameters to determine your creditworthiness. Your lender will check your credit score to determine whether or not you are a creditworthy person before approving your loan application. The minimum credit score requirement to get a used car loan is 750. Although you can secure a loan with an average score, you will have to incur a higher interest rate. If you wish to avail yourself of the best interest rate available in the market, it is imperative to maintain a healthy credit score.
- Repayment tenure
Repayment tenure has a direct impact on your EMI amount. If you choose a longer loan tenure of up to five years, your EMI amount may decrease, but you will be paying higher interest in the long run. The total of borrowing will likely increase due to a longer tenure. However, if you choose a shorter term, your EMIs may increase a little, but you will pay less interest over time. So, before applying for a second-hand car loan, it is better to assess your needs and choose a repayment tenure based on your needs.
- Down payment
Most lenders do not offer the complete value of your preferred used car as a loan. You may get up to 80% to 90% of your vehicle’s market value as a loan. It means that you will have to pay the remaining 10% 20% from your pocket. Although you can secure a higher loan amount, it is advisable to pay at least 30% of your loan amount as a down payment. When you make a higher down payment, your loan amount decreases, and a lower loan amount ensures low used car loan rates.
- Additional fees
Interest rate is not the only fee you will have to incur in a used car loan. You will have to incur dealership fees, documentation fees, and sales tax. To make the best use of your used car loan, make sure to pay the said fees in cash rather than including them in your loan. Your dealership may advise you to add these fees to your loan, but keep in mind that it will only increase the amount, and an increased loan amount attracts a higher interest rate.
- Used car loan EMI calculator
Before applying for a used car loan, you have the luxury of assessing your needs and affordability. Every lender has an online EMI calculator that you can use to determine your EMI amount based on your monthly budget or your affordability. There are generally three factors in an EMI calculator – principal loan amount, loan tenure, and used car loan rate. You can use the EMI calculator to figure out a suitable EMI for yourself.
- Co-signer
Adding a co-signer is the best way to reduce the burden off your shoulder. It is best suitable when you do not have an excellent credit score. Adding a co-signer with a good credit score allows you to secure a lower interest rate. So, if it is your first time applying for a used car loan, make sure to get a co-signer with a healthy score. This way, you can secure a lower interest rate and better loan terms to reduce the total cost of borrowing.
- Late payments
Sometimes, you may get busy with your life or run out of cash to make on-time loan payments. It can happen to the best of borrowers. However, it is imperative to avoid late payments as it results in higher fees and penalties. Besides paying penalties, missing your EMIs more than once can hurt your credit score and ruin your plan of securing loans in the future.
