Used car loans: Common mistakes and how to avoid them

5 MinsDec 30, 2021

Sayali Shinde has recently been promoted at work. To celebrate her promotion she is planning to a car. Since this would be her first automobile, she decided to buy a used car. It will cost her less than a new car and also help hone her driving skills before she buys a new car in two or three years.

getting a used car loan

She visited various used car dealers online and offline before zeroing in on a couple of options. Both the vehicles were relatively new, compact and not too many miles on the odometer. Here is how she finally made up her mind on which one to choose. 

Be clear about your budget
Sayali should be clear about her budget and stick to it as far as possible. She should ignore "special offer" or "just for you" deals. She should also avoid expensive accessories like a GPS, alloy wheels, and so on because this may put her over her budget by over a lakh of rupees. That in turn will mean a higher loan amount, higher EMI and greater interest outgo. 

Strike a balance
If Sayali opts for a longer tenure, her EMI (Equated Monthly Installments) would be lower. A lot of first-time buyers of used cars tend to get lured by these lower instalments. This is a mistake for two reasons. First, while these lower EMI may seem attractive, they also mean that the buyer is paying more interest. Secondly, people tend to forget that since they are buying a used car, they may want to switch to a new vehicle over time – either because they want to upgrade or because the maintenance costs are increasing. In such situations, it doesn't make any sense to opt for a longer tenure. Sayali should try and strike a balance between the tenure of her loan and the EMI that she can afford to pay.

Also Read: Four factors to consider when deciding to buy a new or used car

Lower down payment means extra interest outgo
Most banks offer up to 85% of the value of the used car (based on their valuation of the vehicle). Sayali should keep in mind that a lower down payment means that her total car loan amount will be higher. This will reflect in a higher EMI and a higher interest outgo over the tenure of the loan. Again, the trick is to balance what she can comfortably pay as a down payment and as an EMI.

Compare loan offers, but also look at the fine print
Several websites allow customers to compare used car loan offers. Sayali must do this comparison. But it is equally essential that Sayali doesn’t get swayed just by an offer of a lower interest rate. She should also look at the fine print to look for other, possibly hidden costs like processing fees, foreclosure charges and late payment fees. The trick is to make an informed decision. 

Axis Bank offers used car loans fund up to 95% of the valuation amount and at attractive car loan interest rates. Axis Bank's pan-India network of dealers gives used car buyers all the support needed to complete the transfer of ownership.

To check out Axis Bank’s pre-owned car loans, click here. Know more by using Axis Bank's EMI calculator or a pre-owned car loan calculator.

Disclaimer: The Source, a content creation and curation firm, has authored this article. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.