Tips to get a low interest rate for a used car loan

If you know the auto industry, you’d know that car prices are on the rise. With the prices of vehicles going up every passing year, purchasing a new one can be quite a financial decision. Moreover, while the average life span of new cars is on the rise, buyers are now sceptical about buying them, even though the average car price continues to rise. However, this does not mean you cannot get a car in this market. One effective solution is to buy a used car. This will allow you to get a car without draining your savings much.

If arranging the finances is a concern, you can always go to a bank and apply for a used car loan. With this loan, you can make your purchase and then repay it comfortably in monthly instalments. You can also get an attractive interest rate to ensure that the loan is affordable. The following tips will help you get a lower second-hand car loan interest rate.

Effective ways to get a low second-hand car loan interest rate
 

1.  Keep your credit score in mind
 

One of the most important factors any lender would consider before approving your loan application is your credit score. No matter what type of loan you are applying for, your credit score will always be evaluated. This is because your credit history is a clear indicator of your ability to clear off your loan dues on time.

Before applying for a loan, it is best to have a credit score of above 750. You can improve your credit score by making sure all your EMI payments are cleared on time. You can also pay off credit card dues without skipping the due dates, and not applying for too many credit cards and loans, which makes you look credit hungry. With a good credit score, you become an ideal borrower, which can help you with getting the lowest used car loan interest rate.

2.  Try and make a significant down payment
 

If you are not familiar with what a down payment is for a car, it is the amount that one must pay upfront to buy the car. The rest of the cost of the car is covered by the loan. As an example, if you decide to take out a car loan of Rs 4 lakh and the car price is set at Rs 5 lakh, the down payment value will be Rs 1 lakh.

It is recommended to pay a high down payment because this would mean that the loan amount would be lower, making repayment easier. In addition to making EMI payments more affordable, the bank would also benefit from your decreased risk profile. This would help the bank offer better terms, such as a lower pre-owned car loan interest rate.

3.  Consider the debt-to-income ratio
 

It is always a good idea to check your debt-to-income ratio before applying for a loan so that you can understand whether you can afford to pay the loan's instalment on time. Based on your income and current liabilities (monthly expenses, credit card bills, existing loan dues, etc.), this evaluation is made.

If you have a high debt-to-income ratio, you will have less room to accommodate another loan’s monthly instalments considering your earnings are already getting spent on current liabilities. In this case, there are high chances of your loan application getting rejected or the bank charging you with a high used car finance interest rate.

4.  Earn a steady income
 

Any lender would want their borrowers to earn stable incomes for repaying their loans on time, without delays. If you do not have a stable income, you are a risk to the lender, lowering your chances of loan approval. Even if you do get the loan, you might be charged a high interest rate.

So, it is ideal to earn a stable income with a reputed organisation before applying for a car loan. This would also go a long way in getting favourable loan terms such as a higher loan amount or a low interest car loan from the bank.

5.  Maintain a good relationship with your lender
 

Many people are unaware of the importance of maintaining a positive relationship with their bank. If you have a good rapport with your existing bank, you will be in a much better position to negotiate better loan terms. For example, getting the lowest vehicle loan interest rate possible.

For instance, if you choose IDFC FIRST Bank as your lender, you can get an instant sanction of Rs 15 lakh within 15 minutes. This is for repurchase and refinance loans. With a digitised pre-owned car loan process, you can conveniently apply for a loan without any hassles.

6. Opt for a short repayment tenure
 

Lastly, it is essential to focus on your loan repayment tenure. It is easier to go for a longer repayment tenure with lower EMI amounts. However, opting for a longer repayment period would mean paying more towards your total interest component.

If you have the budget, choosing a shorter tenure for repaying your used car loan would be more beneficial since the total interest paid towards the loan would be less. Of course, take this decision only after carefully considering your income and repayment capacity.

Benefits of buying a used car
 

If you are still wondering whether a used car is a wise move, take a look at the following benefits of getting one:

1.  You can get a certified used car with a warranty
 

The days of verbal assurance for your used car are long gone. Today, you are protected by car certifications checked by certified car engineers. You also have the option of an additional post-purchase warranty.

2.  A used car depreciates at a slower rate than a new car
 

A vehicle depreciates the most when it is at its peak during the first 3 years of purchase. Buying a used car can be lucrative, considering that you will purchase after the car has already undergone major depreciation. Also, a used car depreciates at a slower rate than a new car, so you will also lose less money by buying a used car.

3.  A used car would help reduce insurance costs
 

Getting a new car insured would cost you more than insurance for a used car. While buying a used car, you can also buy one that is already covered by insurance for a specific period of time. You can simply transfer it to your name.

A used car loan is an ideal option to buy a car you have always wanted, without burning a hole in your pocket. After reading the above-mentioned tips on getting a low-interest rate on the loan, you can also ensure that the loan’s monthly instalments are affordable.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.