Used car loans often involve making an upfront payment as down payment for the further financing to ensue. Lenders may also charge a tad higher used car loan interest rate than the rates on new car loans due to the increased inherent risk involved. Nevertheless, it is always possible for borrowers to secure these loans at lower rates with a few aspects in place. It is further crucial that you choose an EMI plan which suits your financial capacity and does not burden your monthly income.
To do so, choice of a suitable tenure is critical, which a used car loan EMI calculator can help with big time. Now, let’s look at some crucial factors that you should check to secure the best interest rate on your used car loan.
Securing the Best Rates on Used Car Loans: Important Factors to Check
- Credit score: Even though used car loans are secured advances, the importance of credit score in securing the best interest rate cannot be discounted. The 3-digit number indicates the creditworthiness of an individual sourced through his/her past credit records, financial discipline, and such other crucial factors. A lender considers a credit score of 700 and above as decent for the purpose of lending used car loans. A higher rate above 750 can help secured the best used car loan interest rate as it reduces the risk of repayment default or delay significantly.
- Amount of funding availed: The loan amount availed can have a direct impact on the interest rate applicable to a second-hand car loan. The amount of financing one chooses to avail also associates with it the total risk involved in lending, with higher loan values involving greater risks and thus higher interest rates, and vice versa. You may thus seek to lower your financing requirement to reduce the rates.
- Total eligibility fulfilment: Depending on how efficiently you fulfil the eligibility requirements laid down by your lender, the total risk involved in lending to you is measured. As risk is directly co-related to interest rate determination, if you do not tick all eligibility factors, the interest rates on your used car loan may be high. It is thus pertinent to check if you fulfil all eligibility criteria laid down by your lender or not before applying for the advance.
- Choice of tenure: Your decision regarding the repayment tenure selection can impact your used car loan’s interest rate as well. Longer tenures often attract higher rates of interest while a shorter tenure can mean lower rates. It is best to choose a tenure that optimises the interest rate and EMI payable outcome. It can be wise to use a used-car loan EMI calculator for suitable tenure selection.
- Source of income and stability: Your occupation, income source, and stability can also impact the final interest rate levy on your used car loan. Usually, salaried individuals with high monthly income and up to 3 years of experience land the best rates on their used car loans due to income stability and a high repayment capacity. The lender may assess your debt-to-income ratio to determine how much more of fixed expenditure you can accommodate in your monthly income without straining your finances.
- Down payment made: The amount of down payment you choose to make impacts the rates of interest on your used car loan as well. Making a higher down payment improves your chances of securing lower rates on your second-hand car loan.
Apart from these, the location where you reside can also determine your used car loan interest rate, with top-tier cities often attracting higher rates. When finalising, make sure to know the different of fixed and floating rates, and choose your interest rate type wisely for reduced repayment liability.