Top Factors Affecting Your Used Car Loan Eligibility
In India, the pre-owned car segment has been growing at 15% per annum during the last five years. Even during the pandemic, used car sales have registered a healthy trend. Apart from the easy availability of used car loan, the second-hand car market is getting increasingly organized. Besides, with reduced ownership periods, newer pre-owned cars are flooding the market. If you, too, have plans to buy a used car using a loan, consider some of these eligibility factors that will impact your used car loan application.
Condition of the car
A used car in mint condition will command a higher resale value. The model of the car and its age, hence, are important considerations during loan disbursal. The car remains as collateral in a car loan, wherein the lender can claim the car if the borrower defaults on repayments. Such cars are then resold by the lender. From the lender’s perspective, if the condition of the car is good, the used car loan eligibility improves significantly.
Applicant’s credit records
Just like any other loan, your credit score is crucial when you apply for used car loan. With a higher credit score, the chances of getting a high value used car loan approved increases. On your part, with an impeccable credit rating, you can demand a favorable interest rate and repayment terms for a second-hand car loan.
Income of the applicant
Loan eligibility and repayment capacity are closely linked. A person with a high and stable source of income is expected to have an assured repayment capacity. If the debt-to-income ratio is sound, then an applicant will be eligible for a lower rate of interest. An unfavorable ratio casts doubts over the applicant’s repayment capacity, which in turn affects loan eligibility.
Closely linked to the income of the applicant is the existing loan obligation. If you have substantial ongoing loan liability, it will reflect in your debt-income ratio. As a result, your repayment capability will be valued at a lower grade. This will eventually affect your loan eligibility.
Verifying the authenticity of the car is safe not only for the buyer but also for the lender. Buying a used car with a documented service history, registration documents, original invoice, road tax receipts, etc. increases the resale value of a car.
Just like the used car loan apply online option, purchase of a pre-owned car can be made through online platforms.
Several factors that affect loan eligibility are common across all loan products, while some are unique to the used car loan category