Public and private sector banks of India provide loans to eligible borrowers for purchase of certified pre-owned cars, which can be up to 80% of its market value, agreement value, or 100% of insured declared value (IDV). Banks usually consider the age of the vehicle, which should not be more than three to 10 years, depending on their internal policy. Some banks also partner with non banking finance companies (NBFCs) to disburse used car loans.
Nonetheless, interest rates are applied on the principal amount, and are usually higher by several notches than loans taken for new ones. However, borrowers with cibil score above 701 drawing a decent salary or income over and above scrutiny of the used car can avail of lower rates purchase a used car from owners, dealers, or via original equipment manufacturers (OEMs).
Table of Contents
Interest Rate on Used Cars in 2023
The interest rate on used car loans provided by banks is applied on the outstanding loan amount each time borrowers pay their equated monthly installment (EMI) as per the select tenure. The RoI on a car loan can either be fixed rate or floating rate opted by a borrower.
The interest rate on a fixed rate of EMI is fixed throughout the tenure. EMI on floating interest rate, on the other hand, fluctuates depending on the change in the bank’s lending rate, mostly after the Reserve Bank of India’s (RBI) repo reset on every financial quarter.
Other factors borrowers should consider is their cibil score, or any bounces in their previous loans, existing relationship with the bank over and above the basic eligibility criteria. Interest rates also vary as per the valuation of the car.
Interest rates on used cars provided by major banks are as follows:
How to Calculate EMI on Used Car Loan
The method of calculating EMI on used car loans offered by public and private sector banks are similar. Let’s consider calculation of EMI with a following example:
An individual applying for a used car loan of INR 10 lakh upon an interest rate of 10.50% for a tenure of 60 months, the following formula is used to calculate the EMI:
Where, E = EMI; P = Principal amount; R = Rate of interest; N = Tenure in months.
EMI = INR 10,00,000 X 10.5% X (1 + 10.5%)60 / (1 + 10.5%)60 – 1
Eligibility to Apply for Used Car Loan
Borrowers should consider their relationship with the bank to check their eligibility to avail of a used car loan over and above factors including:
Applicants
Salaried employees, businessmen, professionals, corporates, non resident Indians (NRIs), and a person of Indian origin (PIO).
Age criteria
Minimum 21 years of age.
Maximum 65 to 70 years at the time of last EMI repayment.
Minimum salary requirement
INR 2 lakh to INR 3 lakh per annum for both salaried and self-employed individuals.
Credit score requirement
701 and above. Cibil score above 750 is considered good.
FOIR and EMI/NMI ratio
Banks use fixed obligation income ratio (FOIR) and the EMI/NMI ratio to indicate a borrower’s disposable income and their repayment capacity—post deduction of income tax minus any equated monthly installment (EMI) on loans—which is usually 60% of gross monthly income for both salaried and self employed.
Features of Pre-owned Car Loan
Banks provide used car loans to both salaried and self-employed individuals and firms. Here’s what you need to know:
Repayment tenure
Up to five years. Remember, most banks consider the age of the vehicle and repayment period together up to 96 months.
Loan-to-value ratio
75% to 80%.
Margin
20% to 40%, or as applicable.
Security
Hypothecation of vehicle financed.
Foreclosure charges
Nil, or up to 5% as per bank’s policy.
Co-applicant/guarantor
Optional.
Concession
- Existing home loan borrowers get up to 0.25% concession on the rate of interest.
- Concession on RoI for borrowers who pledge fixed deposit, National Savings Certificate (NSC), Kisan Vikas Patra (KVP), or the Life Insurance Corporation (LIC ) as collateral.
- Some banks also offer concessions up to 0.50% to women borrowers.
How to Apply for Used Car Loan
Most banks have a dedicated helpline number, or toll free number, to connect bank’s agents with the borrower to help process loan applications. Nonetheless, borrowers can avail of an online application process facilitated by the bank, which is self-explanatory and verified through OTP authentication on the registered mobile number.
The online application process can help borrowers get a used car loan quotation, and eligibility is subject to submission of proof of address, identity, and income of borrowers and related documents to the bank. The bank runs a credit check to check borrower’s loan repayment capacity, or fixes a parameter for interest on loans.
Nonetheless, relevant documents have to be submitted for banks to confirm your eligibility for loan. On the basis of mutual agreement, borrowers sign and submit the e-Mandate consent to authorize the bank to deduct the EMI amount from their bank account.
Documents Required to Apply for Used Car Loan
Documents required to avail of a used car loan, or certified pre-owned cars, vary as per loan applicants, as follows:
Charges Applicable on Used Car Loan
Following charges are applicable on used car loans:
Helpful Resources
Car Loan Interest Rates In 2023
HDFC Bank Car Loan Interest Rate
ICICI Bank Car Loan interest Rate
Kotak Bank Car Loan Interest Rate
Bank of Baroda Car Loan Interest Rate
Punjab National Bank Car Loan Interest Rate
Canara Bank Car Loan Interest Rate
Pre Owned Car Loan: Meaning And How To Apply For One In March 2023
Frequently Asked Questions (FAQs)
What are eligibility factors to apply for used car loans?
Borrowers should consider the age of vehicle, income per annum, age, credit score, FOIR and EMI/NMI ratio, and relationship with the bank to be eligible for used car loans.
What is the maximum repayment tenure to avail of a used car loan?
Most banks have a maximum repayment tenure of up to five years. Remember, banks calculate the age of vehicle and repayment tenure to evaluate repayment capacity of the borrower.
What are the documents required to apply for a used car loan?
In addition to photographs, proof of identity, address, and income, other documents required are the car’s proforma invoice, seller’s RC book and motor insurance copy as well as sale agreement between dealer and sellers.
