Introduction

Loans are available for all kinds of needs, such as buying a house, financing a child’s education, or purchasing a dream car. 

The factors determining a car’s price include registration, insurance, showroom price, and road tax. A car loan can be used for both new and used cars. The pandemic has hampered the production of new cars, fueling used-car sales. 

A used car will have a lower price, resulting in a lower loan amount needed to purchase the vehicle compared with a new one. In addition, a second-hand car loan can offer 100% financing, and the overall process is simple with minimal documentation. 

This article will discuss how you can reduce the used car loan interest rates.

How to reduce your used-car loan interest rates?

While the purchase price of a new car may be higher than that of a used car, the interest rate on used car loans is comparatively higher than that on a new car loan. This is because used cars are considered more risky investments than new cars. A second hand car loan attracts higher interest rates since the resale value of a used car resale values cannot be predicted. Moreover, they are more prone to mechanical issues. 

Here are some tips to get the lowest interest rates on used cars:

  • Research your lenders
  • It is important to research different car lenders, before securing a car loan. Many loan companies won’t offer loans for used cars older than three years. 

Some lenders might charge less or have no processing fees. Moreover, some lenders may have an established history of offering great deals during festivals. Thus, waiting until those times will be wise. Additionally, if the used car loan is taken from the financial institution of the automobile company, the interest rates and loan deals will be better when negotiating. 

  • Make a big down payment
  • As stated before, since used cars involve a high level of risk, their interest rates tend to be higher. Therefore, it is advisable to try to reduce the loan amount as much as possible. The best way to do this is to increase the down payment. Down payments refer to money a borrower needs to pay upfront before purchasing a car. It symbolizes the borrower’s commitment to the purchase. The larger the down payment, the lower the loan amount and consequently the interest rate. 

 

  • Plan a short repayment tenure
  • Lenders require borrowers to present a repayment plan. Some financial institutions offer a longer repayment tenure to borrowers, even up to 7 years. Thus, the borrower will need to pay high-interest rates on their used car loan until then. Therefore, they should aim to pay off the loan as soon as possible to save on high-interest rates. However, check if the lender has any prepayment fees or penalties before prepaying the loan. The borrowers can even take the help of an online used car loan EMI calculator to determine their repayment strategy. 
  • Improve your credit score
  • Similar to other loans, used car loan eligibility also requires a good credit score. A good credit score indicates the borrower has been consistent with his payments. The better the credit score, the more power the borrower has when negotiating and lowering the interest rate on their used car loans. 

Final thoughts

Besides getting the best price on the used car, the borrowers should focus on getting the best repayment deals and lower interest rates. If you have any extra income post savings, be sure to use it to pay off your loan. If you need help determining a repayment strategy, you can always seek financial advice.