In the past few years, owning a car has gone from being a luxury to a complete necessity for people living in urban areas. Therefore, buying a car is an important decision in which many factors come into play. Deciding whether you are going to buy a new or a used car is the first step and then the buyer must decide whether they need a loan to finance this new addition.
Car loans help buyers to afford the four wheeler of their dreams in case they need help financing the purchase. However, did you know that it is possible to take a loan for a second hand car as well? A used car loan can assist a buyer in making the purchase of a pre-owned car, though some buyers are sceptical about taking a car loan to buy a used car. Let us take a look at some of the advantages and disadvantages of buying a previously owned car on loan.
Pros of buying a used car on loan:
- As the cost of a used car is much lower than that of a brand new one, similarly the cost of insurance will also be much lower for the borrower and will help save money.
- The repayment tenure may be flexible for an older car as the amount needed to purchase will be less for a used vehicle. This is why borrowers can get more than 4 to 5 years of tenure to repay the loan lender.
- Often there is no need for a collateral on a used car loan and so the buyer doesn’t need to provide any security fee and can save themselves this burden.
Cons of buying a used car on loan:
- Used car loan interest rates are higher than those on brand new cars. This happens because lenders often find it risky to provide loans for older cars as they are less reliable. Hence, the buyer will have to pay a much higher EMI as well.
- Banks may not fund a car older than 8 years as the average life span of a car is supposed to be 15 years. Thus, the age and type of the car are taken into consideration by lenders.
- Banks may not fund a car that has been sold more than three times. Re-sales decrease the value of the car considerably and lenders often hesitate in providing a loan for a car that has been sold multiple times.
- The loan amount for a used car may be limited to 80% of the value of the car in which case, the borrower will have to shell out the rest for the down payment from their own pocket.
These pros and cons play a huge role in the market and thus, a buyer must consider all these factors along with their own needs and preferences before taking a car loan for a second hand vehicle.