With the availability of numerous used-car brands and models in the market, consumers are opting for used cars rather than getting a new one. Besides that, due to the financial instability induced by the recent pandemic, getting a used car makes more sense. You can buy your dream car and yet be able to put some of your money into savings.
It is worth noting that not everyone can afford to buy a used car these days. If you do not have the budget, it would be wise to apply for a loan and manage your finances without touching your savings. But, before applying for a loan, it is imperative to understand the used car loan interest rate that you will have to pay every month.
The used car loan interest rate is determined based on the loan amount, income, credit score, current financial obligations, etc. To make the best use of a second hand car loan, you will need to get one that offers a lower interest rate.
Here are the best ways to lower your use car loan interest rate:
- Get a lower loan amount
The loan amount that you will choose directly impacts your interest rate. If you choose a higher loan amount, you will have to incur a higher interest rate. Lenders charge higher interest rates to justify the risks involved in higher loan amounts. So, if you wish to lower your interest rate, you may want to opt for a lower loan amount.
- Pay a higher down payment
Lenders do not offer 100% of the vehicle value as a loan. They offer a certain percentage of the market value of the used card as a loan, and you will have to pay the remaining percentage as a down payment. If you have the budget, it is advisable to make a higher down payment to bring down the loan amount. As mentioned earlier, the lower your loan amount, the lower will be your interest rate.
- Compare lenders
Not all lenders offer the same second-hand car loan interest rate. You will have to conduct thorough research on lenders and their interest rate offers. Check at least five lenders in the market and compare their interest rates. Choose a lender that offers the lowest interest rate and no prepayment penalties.
You can avail of such during festive seasons. You will have to keep an eye on the festive seasons and the lenders’ offers during these seasons. Thanks to the internet, you do not have to visit any physical location. You can simply research loan products from the comfort of your home.
- Maintain a healthy credit score
Your credit score is one of the crucial factors in a second-hand car loan eligibility criteria. Before approving your loan application, lenders look at your credit score to determine your creditworthiness and decide whether or not you can make on-time repayments. Besides that, your credit score also has a direct impact on your interest rate. Having a healthy credit score warrants a lower interest rate.
The minimum CIBIL score required to apply for a used car loan is 750. So, if you want to lower your interest rate, you will have to maintain a credit score above the said range. As a rule of thumb, the closer you are to the 900 range, the better are your chances of getting a lower interest rate.
- Opt for a shorter loan tenure
The second-hand car loan repayment tenure has a direct impact on the interest rate. If you choose a longer loan tenure, your EMIs will decrease, but you will have to incur higher interest in the long run, as the total interest rate keeps increasing with time.
However, if you opt for a shorter loan tenure, you may have to bear higher EMIs, but the interest rate will significantly drop, reducing the total cost of borrowing. So, if you have the budget for it, it would be wise to opt for a shorter loan tenure.
- Prepay your second-hand car loan
Your salary may increase soon due to a predicted promotion. In such cases, you can leverage the salary hike to reduce the financial burden on your shoulders. You can choose to prepay a significant portion of your loan to reduce the loan amount and the repayment tenure. A reduced loan amount and shorter loan tenure can get you a lower interest rate.
Your used car loan interest rate is one of the crucial factors in your used car loan. If you do not pay attention to it, you may end up getting trapped in your debt and may not be able to make repayments from your income. So choose your lender and your used-car loan wisely.