If you are planning to buy a used car, you can get a loan on it too. This would save you from an additional financial burden on your regular expenses. Select a model of your choice and apply for a car loan from a lender of your choice. You can choose an EMI (Equated Monthly Instalments) as per the lender’s terms amount that you can pay back comfortably. Interest rate is the main component in the EMI that affects the total amount. So, a few steps towards lowering the interest rate can help you to save more. Read on to know what factors affect used car loan interest rates and how you can benefit by following certain tips.
To get a low-interest rate on a used car loan, you can adopt some of the measures below that suit you:
- Increase the down payment amount
When you purchase a car through loans, there are two options- you can either go for zero down payment or you can make some down payment and pay the balance through loans. If you opt for zero-down payments, you will not pay anything initially but the interest rate would be high due to a high loan amount. You may feel financial stress during repayment. Going for a higher down payment amount would work in this case as it would lead to a low balance amount and interest rate.
- A high personal credit score
Your personal credit score is calculated by agencies like CIBIL (Credit Information Bureau (India) Limited). The score reflects your repayment process, credit history, any default on past or ongoing loans, etc. Lenders consider your CIBIL score as one of the main deciding factors for loan approval. There is a range within which you have to maintain your score. Although there are no clear benchmarks regarding this, a score of more than 750 is what most lenders would consider. A high score can result in the lender fixing a low-interest rate on the used car loan and also makes you eligible to lower it further by negotiating with the lender. If you have a low score, you can improve it by paying your ongoing loan EMIs and credit card bills within the due date. Defaulting on these payments would reduce your score.
- The loan tenure or repayment period
The repayment period that you choose to close the loan affects the interest rate. A longer period or tenure means that you have to pay a higher interest rate on the loan amount. The reason behind this is that the lenders want to avoid the risk of non-repayment which is quite high in case of longer tenures. To avoid loss due to defaults, lenders fix a high-interest rate. If you want to save on the interest payment, go for a shorter tenure. You have to restructure your overall budget for this but you can reduce the total amount of money toward the payment of interest, even if it means a higher EMI. You can also try the flexible repayment tenure. It would help in the repayment of the loan amount in a way that is convenient for you.
- Use the EMI calculator
EMI calculator is an online tool that is very useful for loan applicants. You will find it on the lender’s website. Do not want to create an account or log in? Still, you can use the calculator to find out even before you apply, the interest amount, the loan tenure, etc. by putting in certain details. It is easy to use and for some calculators, you just have to shift the sliders without putting in any amount. You can adjust the loan tenure to get the best interest rate that you can pay. Always find out the exact figures with this tool before you submit the application form.
- Compare different loan offers
This is an important thing that you should do to avoid paying a high-interest amount. For comparing the loan offers by different lenders, you should go for the online process as it is faster and more convenient than the offline process. You do not have to make physical visits but log in from any remote location to visit different lenders’ websites. You can also refer to the quotes comparison websites to make it more time-saving. Compare the features, interest rates, etc, and select a lender who is offering the lowest or comparatively low-interest rate. You may find discounts related to online loan applications, festive or seasonal discounts, etc. Thus, you can save on the internet amount.
Used cars are a convenient way to commute without paying a premium price. More so, you can buy a used car loan to avoid cutting down on your regular expenses. While finalising your loan deal, take some steps to reduce the interest rate as it can bring down your overall expenses. You may have to spend some time researching for it but would benefit from the overall savings.