A Detailed Guide on Buying Used Cars with Finance

(Last Updated On: November 22, 2022)

Many office workers would prefer to commute in their own cars and avoid public transport as the State Governments loosen on-road restrictions.

Many such prospective car owners may choose to buy second-hand cars because of budget constraints or because they might only use the vehicle until the threat from Covid-19 is over. In this scenario, buying used cars with finance can be the best option for any such individual.

Based on the number and value of pre-owned cars sold, the market is 1.2x bigger than the new car sales market. Due to cash flow issues and the pandemic, many people are searching for used vehicles that are cost-effective.

Those who were able to commute by public transport but did not have a car can also be interested now in buying a used car. These days, every member of the family that works has a desire for a different vehicle to aid-in convenience.

Why Buying a Used Car Sometimes Can Create Problems?

  1. Even though used cars can fit into your budget, buying used cars with finance might be too expensive due to the following reasons.
  • Many financial institutions can charge interest from 7.7% up to 16.7%. This is because used cars are seen to be risky due to the uncertainty surrounding their condition, past damages, engine state, and so forth.
  • Also, a used vehicle is not covered under warranty as an option for a new car.
  1. A person who defaults on a used car loan will have fewer chances of getting the full amount back.
  2. Vehicles that are second-hand have a lower resale value. Usually, if repayment defaults occur, the lender can take the car and auction it. In this case, it might not be possible to repay the entire amount.
  3. There are other problems that can arise when you buy used cars. A car loan may still be outstanding for the current owner. In such cases, the seller must first close the existing loan and obtain a lender’s no-objection certificate. Then, the hypothecation will be removed from the registration (RC), and a new RC book without it. This can be time-consuming. The lender will not grant a loan until the process is complete.

Possible Solutions to Availing Used Cars with Finance

A lender usually provides loans for up to 60-80% or more of the vehicle’s current value. The loan-to-value ratio will vary depending on the make, age, and condition of your car. As a loan margin, the borrower should be willing to contribute up to 50% of the car’s value.

  • Top-up loan:  If your home loan is ongoing, you can consider a top-up loan. You will pay much less interest on top-up loans than you would for a loan for a vehicle. You could also finance the entire value.
  • Personal loan: A personal loan is the second option. There are many interest rates available for personal loans. A borrower with high credit scores may be eligible for one that is below 15%. If the rate for the used auto loan is less than 1.5%, it might be worth considering.
  • Look for online used car sellers: A third and the best option can be the websites that are selling pre-owned cars. Such websites are usually partnered up with lenders. They can provide a used car loan at an affordable rate. Businesses that sell used cars will evaluate and certify them. Therefore, lenders can feel confident lending through them. They are more likely to accept loans with lower rates if they can reduce their risk.

Things to Do Before Buying a Used Car:

  • Test Drive: 16% of buyers of used cars do not test drive the vehicle before they buy it. This discrepancy in statistics could explain why there are so many used cars that have been owned by third and fourth owners. You run the risk of experiencing buyer’s remorse if you don’t test the asset that you’re buying. It is important to test drive several used cars before you make a purchase. This helps to avoid buyer’s regret and ensures that the car runs properly.
  • Let a mechanic check your car: Most people test drive cars before buying, but very few have their used cars checked by mechanics before signing the final contract. Even if the inspection costs you extra, it can save you a lot of cash in the end. If the seller is an auto dealer, there is a good chance that they have already made an offer. Make sure to confirm.
  • Run a vehicle history report: In addition to a test drive and an inspection by a mechanic, a vehicle history report is essential. Such a report can be used to verify any previous accidents, problems with your car, and the number of owners of the vehicle.

It doesn’t matter if you buy your used car through a dealer, or directly from an owner via a website, you’ll need to determine how you will pay. Some people are not able to afford to buy a car completely, even if it’s a used one. Buying used cars with finance may be an option for those who cannot afford them.