Typically, a loan is repaid in Equated Monthly Installments (EMIs) over the entire tenure.The EMI is calculated based on the loan amount, total duration, and rate of interest. The higher the cost, the larger is the EMI, and you end up paying more interest over the tenure. This outflow may cause strain on your financial budget, resulting in a liquidity crisis.
Are you delaying your car purchase due to a lack of funds? Are you apprehensive about buying a car with a loan due to high-interest rates? Taking a loan is a long-term commitment, and making timely repayment is critical. However, if you choose a high-cost loan, you may find it burdensome.
There is no reason to worry, as here are five ways to reduce the used car loan interest rate:
- Opt for a lender where you have an existing relationship
Consider seeking a loan from a financial institution where you hold your salary account. In case of a delay in payment, the institution may block the money from this account to reduce its risk.
Additionally, you may check if your company has a tie-up with the lender, as you may benefit from a low-cost used car loan. If you already have a home loan or a fixed deposit, check the car loan offerings from the same institution, as you may be able to procure a lower interest due to an existing relationship.
- Negotiate with your credit score
A common mistake that many borrowers make is to not check their credit scores before applying for a loan. Checking the report allows you to rectify any errors. Moreover, a high score will enable you to negotiate favorable second-hand car loan terms and conditions.
- Do not opt for a pre-approved loan without having complete information
While searching for car finance, you may come across various pre-approved loan offers. However, such a loan may not provide the best interest rate. You may be offered schemes like discounts on accessories or other facilities to avail of this loan. Remember that a higher rate means more interest paid during the loan tenure, which may cause an unnecessary financial burden.
- Apply at the right time
The used car finance market is highly competitive and lenders have pre-determined targets to achieve. Consider applying at the correct time like during the festive season or month-end, or financial year-end to take advantage of lucrative terms. You may also check out the loan fairs that lenders conduct to provide good offers to potential borrowers.
- Choose the appropriate car model
The age of the car plays an important role in your used car loan eligibility. Some financial institutions offer loans for vehicles that are up to ten years old. Moreover, lenders may fund the full value of the car in certain cases. Generally, lenders charge higher costs to provide finance foroutdated or less popular models. Thus, choosing an appropriate vehicle plays an important role to reduce your interest burden.
You must also consider paying a higher down payment if you have the liquidity. This will help to decrease the loan amount, which will reduce the total interest paid during the tenure.
Opting for lenders like Mahindra Finance that offer attractive interest rates can lower your monetary strain. The procedure to apply for a loan is quite simple and requires minimal documentation. Visit the lender’s website and get a good deal on car loan today.