If you really think about it, it's easier getting a loan for a car than a loan for bus fare!

    Used Car Loan Interest Rates 2019

    Here are some of the top banks in the country that offer used car loan in India with their interest rates:

    Bank Interest Rate Loan Scheme Criteria
    State Bank of India (SBI) 12.60% p.a. Certified Pre-owned Car Loan Scheme For certified used cars which are not more than 5 years old.
    HDFC Bank 11.50% p.a. to 17.50% p.a. Pre-owned Car Loan Scheme Interest rate depends on the age and the segment of the car.
    ICICI Bank 15% p.a. Used Car Loans Scheme Rate of interest depends on the segment of car, its age, the loan tenure and loan types like refinance, top up, etc.
    Bank of India (BOI) 9.15% p.a. Star Vehicle Loan Scheme for 2nd Hand Vehicle Scheme The age of the second hand vehicle shouldn’t exceed 3 years.
    Axis Bank 14.50% p.a. - 16.25% p.a. Pre-owned Car Loan Scheme The borrowers can avail a loan for a maximum tenure of 5 years.
    Federal Bank 9.15% p.a. – 9.45% p.a. Personal Car Loan for Used Vehicles Scheme The pre-owned car shouldn’t be more than 3 years.

    Although the desire to buy a new car is common for most consumers, not everyone can fulfil their desire. The desire becomes even more unattainable when the buyers have a favourite brand or car model with a hefty price tag in mind. Fortunately, the concept of buying used or pre-owned cars has changed the scenario to a great extent that now you need not wait for decades to own a car of your choice. You can easily purchase a used model of your favourite brand at a much lower price than what you would have to pay for a new car. This is why used car purchase has increased a lot these days with more people opting for this.

    What is Used Car Loan?

    Used or pre-owned cars are referred to those cars which have been purchased and used by someone for a certain time period and then sold off. Since these cars are not brand new, these can be purchased at a cheaper rate than the new ones. However, even if a used car is cheaper compared to a new car, the buyers still need a large amount of money to make the purchase. This sometimes overshoots their budget and they face difficulty in managing the extra fund that is required. To help out such buyers who need extra money to buy an old car of their the choice, a special type of car loan is offered by the banks known as a used car loan. In simpler words, this type of loan facilitates the consumers to buy their desired car without stressing their existing budget or waiting too long to save the required amount on their own.

    Difference between a Used Car Loan and a New Car Loan

    Here are the basic differences between a used car loan and a new car loan which a borrower must know before taking a loan:

    • While deciding the price of a used car, the on road price of it with a margin of Rs.25,000 for registration, insurance, and other formalities is considered.
    • Banks usually offer around 60% of the on road price of the pre-owned car which sometimes in some special cases even go up to 85%.
    • The car that a consumer is going to buy with the used car finance shouldn't be more than 3 years old. In some special instances, cars which are 5 years old are accepted.
    • 0.5% processing fees will be applicable to a used car loan which is lesser than the processing fee charged on a new car loan.
    • Generally, the repayment tenure of a used car loan is 3 to 5 years and this tenure is not expandable in nature.
    • The interest rate that is applied on a used car loan is fully based on the terms and conditions that are stipulated by the specific bank. There are several criteria based on which the interest rate is decided.
    • In case of a second-hand car loan, the down payment shouldn’t be lower than 15% in any condition.
    • The borrower needn't give any upfront installment in case of used car loans which is sometimes required in case of some new car loans.

    Used vs New Car Loan Interest Rate

    While used car loans are offered to people who are willing to buy a used or pre-owned car, new car loans are provided for buying brand new cars. This is the reason that the interest rate of used cars varies from the interest a rate of the new cars. A used car loan is offered separately from new car loans and the interest rate and other terms and conditions also vary. The borrowers can decide how much they actually want to borrow and for what time period. The rate of interest on the loan will depend upon the type of the used car the buyer is going to purchase. The best thing is, there are a plenty of offers on the used car loans which you can avail while purchasing the car. This will lower the monthly EMIs and you can remain stress-free and repay the loan amount slowly as per your convenience.

    Decisive Factors of Used Car Loan Interest Rate

    When buyers opt for a used car loan, they want to get the low interest rate on the same to make some significant profit. But in reality, the interest rate of used car loan works in a different way. There are a number of factors based on which the interest rates of a used car loan is fixed. Let's have a look at the vital factors that decides the interest rate:

    • Age of the car

    The age of the car that you are going to purchase plays a vital role in deciding the interest rate. Offering loan on a used car is a risky matter for the banks and this is why they charge higher interest rate on such loans compared to the interest charged on a new car loan. Usually, most of the banks offer loan on cars that are not more than 3 years of age because of high depreciation of its value. The older the car is, the interest rate charged by the bank will be higher. Since very old cars are prone to sudden functional meltdown, the lenders try to fetch some value of the car by charging higher interest rates on them.

    • Car model

    When a borrower takes loan to purchase a used car banks automatically consider the car as the collateral of the loan. The car needs to be hypothecated to the bank during the loan tenure so that the bank can seize the car in case the borrower defaults on the loan. The bank will later sell off the car in order to accumulate the unpaid or outstanding loan amount. As such, it is crucial for the banks to take the car model into account while finalising the rate of interest of the loan since every car model or brand may not get sold at a price expected by the banks during the sale. In other words, the resale value of the popular and newly launched car models is higher than that of the less popular or older models.

    • Credit score of the borrower

    Another very important decisive factor of used car loan interest rate is the credit score of the borrower. Banks while providing loans on used car wants to make sure that the borrower is creditworthy and won’t default on the loan. Since a used car will gradually get depreciated, the banks are at a risk as if the borrower default on the loan then the lender mightn’t collect the full amount by selling off the car. Hence, the banks usually charge high-interest rate to collect some value of the car in the form of EMIs. However, if the borrower has a very good credit score of 750 or more with no history of loan defaulting, he or she can negotiate with the bank and the bank offers him/her a good deal on the rate of interest.

    • Loan repayment tenure

    In case of a used car, the loan repayment tenure plays a really big role. As a used car depreciates in its value during a loan with every passing year, the lender wants to collect to minimise its risk by getting some amount in the form of interest during the loan tenure. For this same, based on the loan tenure opted by the borrower the interest rate is decided by the bank. Usually, the banks charge a higher rate of interest on the loan which is taken for a shorter tenure and lesser interest rate for loans that are taken for longer tenures.

    • Income level of the borrower

    If the income level of the borrower is good then it implies that he or she is capable of paying the loan interest on time without defaulting or delaying. Lower the debt-to-income ratio, better for the borrower as that will instill more confidence in the lender about his or loon repaying abilities. And this increased trust of the bank on the borrower increases his or her chances to get a loan at a lower rate of interest.

    • Amount of down-payment

    The down payment made on a loan by the borrower is yet another factor that decides the interest rate of a used car loan. If the borrower pays a higher amount of money as down payment, then the bank has to pay a lesser amount in the form of loan. And when the banks less money, its risk also goes down. This is why the bank offers loan to such borrower in low-interest rate. Also, borrowers who make high amount of down payment are considered to be financially sound and the banks feel more confident to offer them a loan.

    Used Car Loan Terms and Conditions

    The customers need to keep in mind the below-mentioned points while opting for a used car finance to get the best benefit out of it:

    • The documentation requirement for used car loan is lesser compared to that of that of a new car.
    • While taking a used car loan if you opt for private banks instead of public sector banks then you have to go through minimal documentation procedure.
    • The best thing about a used car loan is that this type of car financing option offers a lot of scope of bargaining when it comes to interest rates, loan tenure, down payment, processing fee and repayment tenure.
    • The prepayment penalty in case of a used car loan can be easily waived off which is otherwise not possible in case of a new car loan.
    • The borrower needs to be prepared to pay off higher EMIs as the loan repayment tenure is usually shorter in case of such loan.
    • Most of the banks usually provide minimum 30% to maximum 75% of the depreciated/market/purchase value of the used car. On the depreciated market value of the vehicle or the value assessed by the valuer or sale consideration( whichever is lower).
    • The approved loan amount is reimbursed in the borrower’s account within 1 month of car purchase date.
    • The borrower must provide car insurance from the list of the insurers suggested by the bank. Since used car is more prone to damage and frequent repair, the lender asks for higher insurance coverage for used car loan.

    Used Car Loan Interest Rate Criteria

    Most of the leading Indian banks offer loans to the buyers of used cars at a very nominal interest rate. The rate of interest varies from individual to individual as most of the banks charge a slightly low-interest rate for the female applicants. The used car interest rate is decided by the banks on the basis of multiple criteria. Here are some of the factors on which the interest of used car loan depends:

    • The used car needs to be pledged to the bank till the full repayment of the borrowed loan amount.
    • The loan amount needs to be repaid to the bank within minimum 3 to 7 years. The repayment period varies from bank to bank.
    • Usually, the banks don’t ask for any income-document scheme to offer a used car loan.
    • The hypothecation of the car needs to be purchased out of the bank’s finance in certain cases.
    • Most of the top Indian banks offer separate concession on the rate of interest of the used car loan to women borrowers.
    • The age of the car which is hypothecated against the loan shouldn’t be more than 3 years old.

    Tips for Low-Interest Rate on Used Car Loan

    Though the borrowers often think that the interest rate of the used car will be lesser compared to the interest that is charged on a new car, the actual scenario is completely different. Used cars are actually old cars which have less depreciation value as well as physical value to the users. So, offering a loan on a used car is a kind of risk for the banks. However, with a target of achieving greater rewards by taking greater risks, they offer a good amount of loan for the purchase of second-hand cars but with a higher rate of interest. But there are still by following the given ways, a borrower can arrive at a good used car loan deal:

    • A good credit score can be used as an advantage to get a low-interest rate on a used car loan. The credit score reflects the credit behaviour of an individual, hence if you have a good credit record, it will convince the bank that you will repay the loan time without defaulting. Since used cars gradually lose their resale value with time, the banks are at high risk while offering a loan and this is how they look for borrowers with a very good record of paying loans on time.
    • Consider buying a car which is not more than 3 years old. Most of the banks offer loans only on those cars which are less than 3 years of age. Even if some of the banks offer loan on older cars, the rate of interest is very high.
    • By opting for a longer loan tenure you can bring down the rate of interest charged on your car. Longer tenure equals to the higher number of interest outgoes. This is why banks offer a low interest rate on longer loan tenures as at the end the borrower is actually more amount of money in the form of interest.

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