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Tips to Reduce your Used Car Loans Interest Rates

ICICI Securities 02 Jan 2022 0 COMMENT

Introduction:

Due to the fear of infection from the ongoing Covid-19 pandemic, most people prefer not to use public transport. There has been an increase in the sales of cars, both used and new. When buying a used car, the factors that need to be considered might be intimidating. You need to decide which car you want to buy; analyse the features it has to offer, but you also need to make sure that you can afford it. If you can't afford to pay the entire amount to buy a car, you can always consider taking an auto loan for it.

What is a car loan/ auto loan?

A car loan/ auto loan provides you with money that would cover the entire on-road price of the car. You pay this price to bring the vehicle from the showroom where you bought the car to the road. It includes prices like registration, road tax, insurance, showroom price and other optional charges.

Most banks also offer the option to buy a used car loan. They even offer pre-approved auto loans to existing customers based on their relationship with the bank.

What are interest rates on used car loans?

The auto loan interest rate is the amount the person who gives you the loan charges you and is the percentage of the total amount you borrowed.

Used car loans interest rates are generally higher than new car loans interest rates. It is because the vehicle is old and is already losing value. A lot more money has to be spent by the dealership to make sure the car is in running condition, and since the car is older, the person who is selling it has spent a lot of time and money to find financing for it.

Additional Read: 8 Things to Keep in Mind While Opting for a Pre-Used Car Loan

Let us look at a few tips to reduce used car loans interest rates:

  • You need to check as many lenders as possible to gain the best interest rates possible. Only after careful analysis of all the options that you have available in the market should you select a particular lender. You also might receive a better option from lenders during festival times and schemes.
  • Having a good credit score helps in reducing the interest that you have to pay. A lender will check your credit history before granting you the loan. If you have defaults, the amount of interest that the lender will charge you will automatically increase. But if you have maintained a clean slate and have a good credit score, then the lender will have more confidence in your re-payment capacity and charge you less on the interest rates.
  • Down payment is the money you pay before you purchase the car. Some banks will expect you to make a down payment of the car's value before granting you the loan. If you pay a more significant down payment, you can reduce the interest you have to pay. That also lessens the principal amount that you have to pay the lender later.
  • Most car loans tenures are up to 7 years. That means that you have to pay high-interest rates for seven long years. You need to push the lender for a shorter tenure on your loans. The faster your loan is cleared, the lower the interest that you have to pay on it.

Conclusion

 Before purchasing a used car loan, always look into the interest rates that you have to pay. Higher the interest rate, the higher the impact on your wallet. Before applying for the loan, your number one goal is to ensure the interest rate is as low as possible by following the above steps.

Disclaimer

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