When you buy a used car, you should prepare yourself to spend money on it. The major portion of the cash goes on buying the loan which is not as cheap as you might be thinking. Therefore, if you don’t have that much money to spend, you should not take this step forward.
Most people buy used cars especially when they are new drivers and want to gain some experience in driving. They do not want to spend lots of money on purchasing a new vehicle. Pre-owned cars usually fit into the financial plan very well. However, before you make your final decision, there are certain things that you need to consider before buying a used car on loan:
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Loan amount:
Banks can provide you up to 90 percent of loan amount if you are buying a new vehicle whereas it restricts the loan amount to 80 percent when purchasing a pre-owned vehicle. Also, you have to fulfill some eligibility criteria if you require a loan of more than five lakh Rupees.
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Loan Tenure:
The next thing that you should consider is the time that you have been given by the bank to repay the loan amount. Usually, the loan tenure for pre-owned cars is 3-5 years whereas for new vehicles it can be extended up to 7 years. The banks also check the age of the vehicle before providing the loan to any individual. If the vehicle is too old, then the bank won’t be able to issue you a loan.
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Interest rate:
This is the point where the new vehicle loan owners get more benefit than the ones who get used car loans. If you are buying a new vehicle, you will have to pay an interest rate between 8%-14% whereas if you purchase an old car on loan, you have to pay an interest rate of 9% onwards and up to 18%. Therefore, you can say that it is more expensive to finance a pre-owned vehicle.
Pros of financing a car
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Afford to purchase a car:
Source: experian.com
The primary benefit of vehicle financing is that it permits you to have the option to bear the cost of a vehicle. Not everyone can afford to purchase a car using one time cash payment, so financing allows you to pay for your vehicle over the course of a couple of years. You have a period of up to seven years to repay your loan.
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You can freely customize the vehicle:
You will ultimately claim the vehicle once the installment plan is finished, hence, you could adjust or modify different parts of the vehicle as you would prefer even prior to completing the total installments. If you didn’t own it, you’d need to manage the issue of returning it to the vendor in stock condition when the rent is up.
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You can buy the car you always wanted:
With vehicle finance, it’s for the most part simpler to buy more costly vehicles that you have always dreamt of purchasing. Brand new cars are more reliable, so there is no risk of it getting damaged, which means you don’t have to spend a hefty amount of money to get it repaired like you might have required when you buy a pre-owned vehicle.
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It helps you improve your credit score:
Source: cnbc.com
If you repay the loan amount completely and on time, then your credit score will improve. Whether you want to create a great credit or improve your bad credit scores, car loans are the best option that can help you with this. ChooseMyCar is the best place where you can get financing for your vehicle to improve your bad credit.
Cons of financing a car:
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Paying monthly installments:
Source: car.co.uk
We all know that nothing in life can be achieved for free and the same goes with buying a car on loan. Whenever you take a loan, you have to pay monthly installments to the bank or lender. If you have calculated everything accurately according to your financial plan, then this might not create difficulty for you. But if you haven’t analyzed this beforehand, then it would become a problem for you. Therefore, always make a plan and know how much you can afford to pay as a monthly installments.
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High interest rate:
As mentioned earlier, you have to pay about 8-14 percent of interest rate on your vehicle loan. The interest rate usually depends upon your credit score. If your credit score is low, you will be charged by the lender with a higher interest rate. It is because the lender is risking his money for a person who doesn’t have a good past record of paying the installments on time. However, if your credit score is higher, you have a chance to get financing for your vehicle at a low interest rate.
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Insurance:
When you are financing a car, you’re presumably purchasing a shiny brand new or pre-owned car with a moderately high worth, so your insurance expenses may likewise be higher. Also, your lender might expect you to carry high physical damage coverage insurance so that his interest is protected. Therefore, it is essential to consider the insurance as well before you decide to finance a car.
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Depreciation costs:
Source: complete-leasing.co.uk
Financing a vehicle would not seem to be the best option for people who know that even their brand new cars would end up getting bad after some time and they will require expensive repairs to get back to working. The value of the vehicle keeps depreciating with time.
TO SUM UP
Yes, financing a used car is more expensive than the new ones because the rate of interest is higher in the first case. Also the period given to you to repay your loan on pre-owned vehicles is less than the loans on new vehicles. Therefore, it would be better for you to keep in mind certain things as mentioned above before financing an old car.