Cars allow you the freedom to travel at will without having to depend upon public transport or cabs. They are great in times of emergency and they can be a safe way for your family to commute as well. But buying a new car can be an expensive affair and you may be putting off a car purchase just for this reason. Used car finance is a simple solution you can adopt to buy a car when you cannot invest in a brand new one. Here’s how you can get a loan to buy a second hand- car at low rates.
Tips to keep used car loan interest rates low
Big down payment:
The simplest way to reduce your monthly outgo for the used car loan is to reduce the loan amount itself. This is possible when you make a large down payment in cash at the time of purchase. Before you start shopping for your car, assess your finances and determine how much of your savings you can use for this purpose. The larger the down payment, the smaller the loan amount and hence the lower the interest rate you get.
This might be a good time to break some of those FDs that you had set aside for a rainy day. Before you do that, compare the interest rates you are earning on the FD with the interest rate you will pay on your loan. If the FD earns a lower rate than the interest pay out you will take on, then the choice is simple. Using the FD for the purchase and reducing your loan amount is the smarter financial move.
Any lender first looks at the potential borrower’s credit score to see if they present a good risk, that is, if they have a record of repayment on time. A borrower who has a good credit score is a good customer for the lender and to ensure they take the loan, the lender makes the terms, especially, the interest rate, more attractive. Before you start applying for your used car finance, ensure that your credit report is accurately reflecting all your repayments. Try to improve your scores by paying off long standing dues so that your credit score is favourable to you.
If your credit score is not great, then consider postponing your purchase for a few months during which you work to improve the score. Remember that a better credit score translates into more savings throughout the life of your new loan and that could mean some big money.
Don’t go with the first lender you find. Always do some comparison shopping before you select your lender. Of course, one of the main criteria for comparison is the used car loan interest rates offered by various lenders. A lender offering a low rate is a good choice for you if they have a good reputation in the market, offer other easy terms as well and believe in transparent dealings with customers.
If you already have a loan running with a lender, check with them first. Usually, lenders give preference to customers who already have loan accounts with them, especially if you have been regular with your EMIs. You may be able to negotiate for better used car loan interest rates more easily.
Pick short tenure:
The EMI payments are typically higher when you pick short tenure but if you add up the total outgo, you will see that you have paid less interest overall when compared with a long tenure loan. Choosing a shorter tenure lets you buy your car for less money than a long- term loan. Calculate the EMIs for the short- term tenure and check if you can manage the financial load before you decide the terms of the loan. If you can handle the higher monthly pay outs, then taking a short tenure loan may be a good idea.
Used car finance is in demand through the year so you will find competitive rates in the market if you look long and hard enough. However, it is important to assess the lender before you sign up for a loan. This ensures that you have a peaceful, hassle free experience until the loan is repaid in full.