Second Hand Car Loan Interest Rates Eligibility And Documents

If you wish to purchase a car while still managing all your other expenses, then opt for a second-hand car. Sometimes, you may not have enough funds required to buy a car. In that case, you can go in for a second-hand car loan. Multiple lenders are offering these used car loans at competitive interest rates and flexible repayment tenures. Let us now read in detail about second-hand car loan interest rates, eligibility, documents, etc.  

Second Hand Car Loan Interest Rates of Top Lenders 

The table below shows the second-hand car loan interest rates offered by some of the top lenders.  

Disclaimer: The interest rates mentioned above are as of when this page was written and are subject to change. For exact interest rates, contact the respective banks or financial institutions or refer to their websites.   

Key Highlights of Pre-owned Car Loans  

A used car loan comes with various benefits. Some of the main highlights are as follows:  

• Interest rate: The interest rate of a second-hand car loan varies based on the age and make of the car. The interest rate levied on a used car loan is higher compared to that of a new car loan due to high maintenance and insurance cost. Many crucial parts of the old car may not be available currently and you will have to purchase them for an exorbitant cost.  

• The process to apply for the loan is simple and can be completed online.  

• Easy repayment terms are given by specific lenders. 

• Minimal paperwork is required, so the documentation process is very simple. 

• Depreciation rates and insurance costs are lower for a pre-owned car when compared to a new car.  

• Certain banks and NBFCs provide 100% financing. 

• The loan amount in a used car loan may be low when compared to a new car loan. So, the EMIs will be low.  

Second Hand Car Loan Interest Rates in India - Impacting Factors 

The main factors impacting car loan interest rates in India are:  

• Debt to income ratio: This is the ratio of debt to income. Higher the ratio, lower will be the confidence that you can repay your EMIs on time. Experts recommend a ratio that should be kept within 30%.  

• Repayment tenure: Low interest rates are offered for a longer tenure. However, the interest payable will be higher. For short tenures, the interest rate is higher, but the overall amount paid will be less. So, it is essential to verify the EMI before selecting the repayment term.  

• Increase the down payment: When the down payment is high, lenders offer a low interest rate, and the EMIs are also low since the principal amount is low. Making a high down payment also shows lenders that you are financially sound and can repay the loan with ease.   

• Relationship with the Bank: It is ideal to get a loan from your current bank before contacting other lenders. This is because your loan will get sanctioned easily if you have a good relationship with the bank. Also, interest rates may be lower if you maintain a good relationship with the bank. 

• Age of the vehicle and model: Since the car itself acts as the collateral, you do not have to submit any collateral separately to get a used car loan. If the monthly payments are not completed, the car will be taken by the lender. Since the car is the collateral here, the age and model of the car are important factors to be considered. Interest rates may be low if the car is newer and from a popular manufacturer.  

• Income: Your income is an important factor in determining the interest rates. People with a regular income and a stable job may be sanctioned a used car loan with a low interest rate.  

• Credit score: A credit score is a number between 300 to 900 summarizing your repayment history. It reflects your creditworthiness. So, having a good credit score helps you get pre-owned car loans with ease and at lower interest rates. Lenders are confident of your repayment ability. However, having a poor credit score culminates in the rejection of your loan application. Even if your used car loan is sanctioned, you will be charged high interest rates. 

Second Hand Car Loan EMI Calculator 

A used car loan EMI calculator helps you calculate the monthly payments or EMIs easily. Besides being convenient to use, the calculator minimizes the time required to compute EMIs. Once you enter the details asked for such as the rate of interest, loan amount, processing fee, and repayment tenure, the result will be displayed instantly. In most calculators, the amortization schedule is also shown.  

Example: Jim is looking to purchase a pre-owned car for himself. He is looking to avail of a loan of up to Rs. 7 lakhs for a tenure of 4 years at an interest rate of 13.55% given his credit score is around 750. The EMI he will have to pay are given below: 

Then, the monthly EMI is: Rs. 18,971 

Principal amount: Rs. 7 lakhs 

Total interest: Rs. 2,10,603 

Total amount: 9,10,603 

2024 
 

  

2025 
  

 

2026 

  

2027 
  

 

2028 

 

 

Second Hand Car Loan Eligibility  

Banks and NBFCs set certain eligibility criteria for second-hand car loans. These criteria vary across both salaried and self-employed individuals.  

• Salaried employees:  

• Age Limit: 21-65 years 

• Income: Minimum of Rs.15,000 per month 

• Income Status: You must be working in the present organisation for at least a year 

• Self-employed Individuals:  

• Age Limit: 25-65 years 

• Income: Must make a minimum profit of Rs.1.5 lakh annually  

• Income Status: Must have been in the same domain of business for at least 3 years 

Documents Needed to Get a Used Car Loan  

The documents necessary to obtain a used car loan for salaried and self-employed borrowers are as follows  

For Salaried Borrowers:  

Income proof: recent pay slip, tax return, or other documents showing your income

Employment proof: A letter from your employer declaring your job title, salary, and employment length

Driver’s license: A driver’s license is required as a proof to show that you can drive legally

Car insurance: It helps in protecting the lender if you cannot repay the loan

Recent bank statements: Your financial history helps the lender to evaluate your ability to repay the loan

Tax returns: Your income and expenses for the particular financial year from 1st April to 31st March

Credit report: Your repayment history can help the lender evaluate your ability to give back the loan.

 

For Self-Employed Borrowers:  

Income proof: recent tax return, profit and loss statement, or other documentation showing your income

Proof of business ownership: A business license copy, legal documents filed with the government to document the creation of a corporation, or other documents to show that you are the owner of the business

Driver’s license: A driver’s license to prove that you are legally allowed to drive.

Car insurance: This is to safeguard the lender if there is a loan default

Recent bank statements: This is for the lender to assess your repaying capacity

Tax returns: Your income and expenses for the particular financial year from 1st April to 31st March

Credit report: The lender evaluates your creditworthiness based on your credit report. That is how well you can repay your loan is assessed based on this document.

 

Additional Documents To Be Provided by Self-Employed Borrowers 

• Invoice or contract copies from clients 

• Business asset proof 

• Letters of proof from suppliers or vendors for your business and performance.  

Things to Consider Before Taking a Used Car Loan  

Some of the important things that must be considered before taking a pre-owned car loan are as follows:  

• Check the type of car insurance: Check the type of insurance that the car is insured under. You can select a third party insurance or a car insurance.  

• Validated registration certificate: Ensure that the registration certificate is authenticated. The owner’s name, the chassis number, and the engine number must be specified on the registration certificate. Besides the registration certificate, the pollution certificate and the road tax receipt must be checked. 

• Service records: Verify the service records of the second-hand car to see how many times it has been serviced. Check if it has had any major issues.  

• Condition of the car: It is important to check the interior, engine, tyres, and exterior. Test drive the car before u purchase it.  

Additional Fees for Second Hand Car Loans 

Some additional fees constitute second-hand car loans, and they are as follows:  

• Processing fees:  The processing fee for the used car loan ranges between 1% to 5% of the loan amount. It varies across loan amounts, tenure of the loan, and the lender.  

• Registration fees:  This varies according to the state and age of the car. Registration charges generally range from Rs. 500 to Rs. 1000. To find the exact registration charges, you need to enquire about the amount in your state of residence.  

• Insurance Cover: You should check if there are any pending payments for the used car you are buying. Also, check its insurance cover. You should go in for the used car only if all the insurance-related documents are in place.  

• Legalize the bill of sale: When going in for a second-hand car, the bill of sale must be notarized. This will help in showing proof of ownership if there is some dispute. It is a legal document.  

Benefits of a Used Car Loan  

• Lower EMIs due to lower interest rates 

• Faster approval process compared to a used car loan 

• Some lenders offer used car loans without a down payment 

• Lesser upfront costs because used cars are less costly than new cars 

• Extended warranties to safeguard you from unpredictable repair costs 

• Gap insurance to protect you if your car is totaled and you still are indebted to pay the loan.  

Conclusion 

Checking the second-hand car loan interest rates across lenders is very important before you opt for the loan. You can then zero in on the lender who offers the most suitable interest rate according to your financial position.  Also, compute the total cost of the second-hand car loan by considering additional charges.  

FAQs on 2nd Hand Car Loan Interest Rate

1. What is the second hand car loan interest rate?

The second-hand car loan interest rates vary across banks. ICICI Bank offers rates starting at 11.25% per annum, while HDFC Bank’s rates range from 9.70% to 13.54%. SBI provides rates between 11.70% and 15.20%, and IDFC First Bank offers a rate of 11.49%. Axis Bank has rates between 13.55% and 15.80%, and Bank of Baroda offers rates ranging from 12.10% to 14.85%. The exact rate depends on factors like the borrower’s credit profile and loan amount.

2. Can you get a bank loan for a second-hand car? 

Yes, you can get a loan for a second-hand car from a bank, NBFC, or even a fintech platform. The first thing that you have to check is the interest rate of the loan. The interest rate on loans for used cars is usually higher than that of loans for new cars.   

3. Can we get a loan on a second hand car?

Yes, you can get a loan on a second-hand car. Many banks and financial institutions offer used car loans, typically covering up to 80-90% of the car’s value. The interest rates on second-hand car loans may vary depending on the lender, car model, and loan tenure. These loans are available for cars that are usually up to 5 to 10 years old, depending on the bank’s policy. You’ll need to provide documents such as identity proof, address proof, income proof, and the car’s valuation report to avail of the loan.

4. What is the best interest rate for a used vehicle?

The best interest rate for a used vehicle loan varies depending on the bank, financial institution, and the borrower's credit score. Generally, interest rates for used car loans range between 9.80% to 15.80%. Some leading banks may offer lower rates to borrowers with excellent credit. It's always a good idea to compare loan offers from multiple lenders to find the most competitive rate based on your profile.

5. Will there be any foreclosure charges? 

Yes, many lenders charge a penalty for foreclosure or pre-closure of the loan.