Choosing The Right Lender For Your Pre Owned Car Loan: Banks Vs Dealerships

Finding the right car that suits one’s budget but provides luxury or good performance is not easy. A pre-owned car loan is a simple solution to such issues. A well-maintained used car provides all the features of a premium car with considerable savings and minimal depreciation.

Once a borrower decides to get a used car, he/she will want to find the best lender to finance the purchase. The following sections will cover how to choose the right lender.

How does a pre-owned car loan work? 

First, it is important to understand how a pre-owned car loan works. Pre-owned car loans are secured loans used to purchase second-hand cars. Such loans are subject to lower loan amounts because second-hand cars are usually priced lower than new cars.

For pre owned car loan, the lending institution can either be a bank/non-banking corporation (NBFC) or an informal lender. Once the potential borrower submits the loan application, the lender will evaluate the car’s condition. Before approving a loan, they will check the applicant’s income, credit report and other financial information. 

Once the lender is satisfied with the background check, they will issue a sanction letter and pay the used car dealer on the borrower’s behalf. Now, the borrower has to start repaying the loan over a certain tenure via monthly repayments called equated monthly installments (EMIs).

Considering that monthly payments, loan amounts, and interest rates are the components of second-hand car loans, its working process is the same as regular vehicle loans.  

How to choose a lender for pre-owned car loans? 

Buying a car is an important investment. Here are the detailed steps to choose a lender for buying a second-hand car: 

Step 1: Choose the budget, interest rate and tenure 

First, people need to set a budget and include in it the running cost for the entire year. Potential borrowers can use a pre-owned car loan online EMI calculator to decide on the loan amount, interest rate and tenure they can easily afford.

Step 2: Compare various options 

It is a good idea to make a list of the offers of various lending institutions. People should undertake detailed research and check the interest rates of each. Every lender has their eligibility criteria including minimum income requirements, age criteria and job experience. 

Applicants also need to submit several documents, including proof of income, identity and residential address. It is a good idea to have these documents at hand when applying for a loan.

Step 3: Find out about fees 

An important step while comparing lenders is to check the charges levied by each one of them. Financial institutions levy loan processing charges, documentation charges, registration certificate collection charges, stamp duty, loan cancellation charges, etc., for a pre-owned car loan. Borrowers can compare the charges of various lenders before choosing one. 

Step 4: Don’t forget to ask about prepayment 

Applicants must ask the lender about prepayment charges and details because this is a point that people often miss out on. Many a time, lenders don’t allow prepayment until a certain timeframe has passed. Customers of certain banks don’t have to pay any fees for foreclosing a used car loan if it takes place within 2 years of sanctioning. 

After the due verification, the lender will sanction an applicant’s loan and disburse the amount directly to the seller.

The right lender – dealership vs banks 

What is the most appropriate lending institution for pre-owned car loans- banks or dealers? One must be aware of the pros and cons of each option before applying. 

Before proceeding to explore the benefits and limitations of each, it is important to understand dealer financing. It is an indirect loan or financing option that retailers offer their customers. Many used-car dealers are partnered with financial institutions to provide such facilities.

Benefits of loans from dealers: 

• People can consider used-car financing from dealers if they don’t have time to research offers from lending institutions 
• Availing of loans from dealers tends to be easier than banks as they file all the paperwork 
• Applicants with low credit scores may find it easier to avail loans

Limitations of loans from dealers 

• Dealers may set higher interest rates 
• Generally, a dealer shares a relationship with one or few lenders which restricts borrowing options for customers 

Benefits of used car loans from banks 

• Borrowers can avail of loans at attractive terms and conditions. They can also avail of pre-approved offers which expedite the application procedure 
• As multiple banks offer used car loans, one can pick the best terms and conditions available in the market
• It allows borrowers to get financing ahead of time and focus on purchasing the best car at a dealership

Limitations of used car loans from banks 

• Chances of delays are high as banks take time to evaluate applications 
• Borrowers may have to navigate the process on their own 

The pre-owned car loan requirement varies from one individual to another. So, it isn’t possible to state which is a better financing option. Both of these financing options have their benefits and limitations. 

Borrowers should check their pre owned car loan interest rates,  financial requirements, and tenure they’re comfortable with. They need to compare offers of various lenders and dealers before choosing the option most suitable for their interests. 

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