Purchasing a second hand car is one of the top trends doing rounds in the Indian automobiles sector. Common reasons that have led to the increasing demand for used cars include their affordability and usefulness for traffic navigation and convenience of commute. Simultaneously, financing for used cars has also witnessed a proportionate rise.

Several lending institutions have thus made way for used car loans to aspiring individuals. Nevertheless, affordability still remains a top consideration as the financing option creates a liability over and above the actual market price of the used car. You must thus consider factors like second hand car loan interest rate, EMIs payable, etc. to keep your repayment liability in check. So, below are discussed a few essential factors that impact your overall used car loan affordability with interest rate and total interest payable as the primary focus.

Interest Rate on Your Second Hand Car Loan

Multiple factors affect the interest rate a lender levies on a second hand car loan. It is essential to find the lowest rate to ensure maximum affordability of the financing option. One of the best ways to do so is to compare market lenders to narrow down to the financial institution offering the most competitive second hand car loan interest rate.

Other ways to do so include – 

• Paying off your existing loans

Interest rate levied on a loan is largely a reflection of the risk involved with a borrower and the tenure selected. You would thus need to reduce the risk involved with your borrower profile with suitable measures. One of the best ways to do so is through repayment of any existing loan.

Once an active loan account is closed with liability payoff, it frees up your finances, reducing the overall strain on your income. A reduction in total fixed liability would thus improve your repayment capacity and improve your chances of securing the best interest rates.

• Applying for a lower loan amount than the maximum eligible amount

The loan amount you select directly impacts the EMIs you would need to pay every month towards your total loan liability. A higher loan amount would thus result in sizeable EMIs, covering a significant percentage of your monthly income.

Contrarily, a loan amount lower than your existing eligible amount means reduced EMIs and an improved repayment capacity, thus increasing your chance of reduced interest rate levy.

• Providing all income documents

You can also resort to disclosing all your income sources and providing the corresponding documents thereto. Doing so shall improve your repayment capacity and better your chances of affordable financing. Some of the income documents you can provide for the purpose include salary slips, rental receipts for let-out property/properties, investment profits, etc.

• Negotiating with your lender

Existing customers can also leverage their positive lender relationship to secure better second hand car loan interest rate. They can also utilise their financial position from an existing employment with renowned employer or business stability for such negotiation and make the loan affordable.

Impact of Credit Score on Used Car Loan Affordability

Credit score is a 3-digit number that indicates the creditworthiness of an individual through assessment of various financial factors like repayment habits, financial discipline, credit mix availed, etc. Lenders often cross-check the risk involved in lending to an individual with their credit score and determine the interest rate on used car loans, or for that matter any other loan, accordingly.

You can thus keep track of your credit score and take necessary measures for its improvement so that they are able to secure better second hand car loan interest rates. Remember that credit score improvement is a time-taking process. You must thus undertake adopting with the necessary steps at least a year before you plan availing the advance.

Tenure Selected and EMI Affordability

The tenure you select also determines your loan affordability as interest is directly related to the total time involved in loan repayment. A long tenure thus increases the total interest liability. In contrast, it also reduces the EMIs payable as the total loan liability, including principal and interest, is spread over stretched number of months. You must thus strike a balance between the interest payable and EMI amount to select the most affordable option.

Along with second hand car loan interest rate and other mentioned factors, you must also consider other rates and charges levied on the loan. All these factors combined will help you select the most suitable financing option to make your second hand car purchase financing affordable.