Buying your own car is going to be one of the most important decisions in your life and certainly one that is going to require a bit of planning. A purchase such as this requires a good credit history, a plan to finance the car, and a repayment plan. For pre-owned cars, personal loans are often one of the best financing methods. Here are some factors that one should keep in mind when taking a personal loan for a pre-owned car.
#1 Evaluate your Repayment Ability and Fix a Loan Amount
To take a personal loan, customers must go through their credit history, check their credit score and estimate monthly EMIs so that they can have a better idea about their ability to repay the loan. Borrowers can do this by using an auto loan EMI calculator that makes it a matter of seconds to arrive at an accurate value of your repayments. Once this is done, you must consider all the costs of buying a pre-owned car and arrive at the loan amount you intend to borrow.
#2 Choose a Lender
Choosing a lender is going to be one of the most crucial aspects of this process. There are many factors that you would have to go through in order to pick the right lender.
- Interest Rates – Comparing interest rates on personal loan across different lenders is an important step because higher interest rates can raise the total cost of the loan by quite a lot especially if it is stretched out over a long period. In addition to this, the type of interest rate, ie. whether fixed or floating is also going to make a difference.
- Financing – This would include how much percentage of the cost of the asset is the lender willing to pay. It is generally 70 – 80 % but can vary for various lenders.
- Loan Tenure and Prepayment Options – A shorter loan tenure tends to lower the overall cost of the loan as compared to a longer one. The maximum loan tenure allowed by the lender may also depend on the age of the car. A lender should also have lower or zero prepayment charges so that the borrower can prepay the loan if possible.
- Speed – Good deals are hard to come by, and sometimes you may need a personal loan within a very short time. In this case, the lender should offer a hassle-free application process and immediately disburse the loan amount.
- New-age Options – While conventional methods like bank loans are well known, borrowers can also consider new-age lending options such as loan apps like EarlySalary. EarlySalary offers a collateral-free personal loan with instant disbursals at affordable rates and with a hassle-free online application process. It also has dedicated auto loan offerings.
#3 Documentation Formalities
In the case of pre-own car loans, banks require hypothecation formalities. This means that while taking a pre-own car loan, it is hypothecated to the bank and this gives the bank the right to seize the car in case of a default in payment. Since the bank’s name will be on the car registration certificate, one has to go through certain formalities after repayment of the loan to change the name on the RC. But for pre-owned cars, there are other complications too. Customers must ensure whether or not the existing owner of the car has any outstanding loan on it. If yes, then it is required that the seller first close the existing loan, avail a no-objection certificate from the lender, and get the hypothecation removed from the registration certificate.
#4 Read the Fine Print
It is always important to read the fine print of a loan so that you are aware of all the terms and conditions associated with it and to find out whether there is any clause that could affect you later.
Many lenders may also offer personal loans or credit at artificially low rates and put up offers that seem very attractive at first sight. However, it is always better to read the offers carefully and steer clear of gimmicky schemes. Therefore, the best idea is to jot down an extensive list of factors that you must go through when taking a personal loan for a pre-owned car and then chart out an effective plan.