How Car Age Affects Used Car Loan Terms?

Cars are depreciating assets and decrease in value with time. A used car has a lower resale value, which means that if a borrower defaults, the lender will have to face heavy losses when trying to recover the loan.

Relatively newer pre-owned cars are generally easier to finance with favourable loan-to-value ratios, while older vehicles may have slightly different terms to match their depreciation and condition.

Read Also: 7 Factors to Consider Before Applying for a Used Car Loan

What is Depreciation, and How Does it Affect the Car's Value?

One of the biggest reasons why car age is so important is depreciation. All cars start to depreciate the moment they leave the showroom. Depreciation is the gradual decrease in the car's value because of wear and tear, use, and lower market demand. Depreciation occurs the most in the first two years.

Lenders consider depreciation because it affects the car’s resale value. An older vehicle that has already lost a significant amount of its value is riskier. ​​Because of this, a vehicle that is 2 years old might still be qualified for a larger loan amount and better terms, whereas a car that is 12 years old would not qualify at all or only partially.

Read Also: What is Depreciation and Factors That Affect It in Case of a Used Car

Other Factors That Lenders Consider

Age is not the only factor considered by lenders while checking eligibility for a used car loan. Most lenders review the bigger picture before they offer you a Pre-owned Car Loan. Here are some other factors that lenders will consider:

• Credit Score: Having a clean credit record indicates that you're a responsible customer. Even with an older car, having a good credit rating can put you in a favourable position. Similarly, if you have a poor credit score, it might result in higher interest or even rejection.
• Income Level: Your income is also a significant factor in determining eligibility for a loan. A regular and stable monthly income gives them confidence that you will not miss payments. Self-employed borrowers will have to submit additional documents to establish a constant income.
• Down Payment: The higher the down payment you can make, the lower the risk to lenders. A higher down payment speeds up the loan approval and lowers the total cost of the loan.
• Car Condition: The mechanical and physical condition of the vehicle is critical, particularly for used cars. A vehicle with good service history, regular maintenance, and no severe damage will be more easily financed compared to one with a bad service history.

In general, car age is an essential factor; however, your general financial situation, your ability to repay the loan, and the state of the car all together determine whether you can get approved for a car loan and the conditions that you're offered.

Read More: The Ultimate Used Car Checklist: 25 Things to Inspect Before You Pay

How Can You Increase Your Chances of Getting a Used Car Loan Approved?

Here are some tips that will help you become more eligible for used car loans:

• Second-hand Car’s Age: To increase your chances of getting a loan approved and receiving better terms, choose a car that is not too old, ideally, less than 8 to 10 years old.
• Verify the Car's History: The car's history must be clean. Ensure the car has not been involved in serious accidents, has no service issues, and has no pending loans or insurance claims. The lenders feel more confident when they know the car is in good condition and has no hidden problems.
• Choose a Reliable Dealer: Always opt for a certified pre-owned dealer or an authorised dealer to buy a pre-owned car. The dealers usually check the cars thoroughly and then certify them, so lenders are assured that the vehicle is reliable and eligible for financing.
• Make a Larger Down Payment: Try to make as large a down payment as possible, as it will lower the loan-to-value ratio. This reduces the risk for the lender and increases the approval chances. Sometimes, it will also qualify you for a lower interest rate.
• Choose a Shorter Repayment Term: Short repayment durations are preferable to lenders in the case of used vehicles, as the value of the car continues to depreciate. A loan term of 2-4 years can increase your chances of qualifying for a loan.
• Maintain a Good Credit Score: Your credit score plays a vital role in the approval of a Pre-owned Car Loan. A good credit score indicates you are financially disciplined, which can help balance the risk to the lender on your used car loan.

Read Also: Factors to Consider Before Applying for a Used Car Loan

To Conclude

Car’s age is one of the most important factors that lenders consider when determining your eligibility and terms for a Pre-owned Car Loan. The loan can help you fulfil your dream of having your own car. However, always take your financial situation and personal requirements into account, and make a well-informed decision when applying for a used car loan.

Looking to get a used-car loan? Poonawalla Fincorp offers a Pre-owned Car Loan of up to Rs. 75 Lakh at affordable interest rates with a long repayment tenure of up to 6 years. Apply now and take the first step towards owning your dream car!

FAQs

Can I get a car loan if the car is already 9-10 years old?

It depends on the lenders; most of the financing is restricted to cars under 8-10 years of age. However, some lenders may also offer loans for vehicles that are 9-10 years old with limited loan amounts, interest rates, and tenures.

Does the car's age affect the interest rate on a car loan?

Yes, older cars usually attract higher interest rates due to a higher risk for lenders.

Will a higher down payment help me get a car loan for an older car?

Absolutely, a larger upfront payment reduces the lender's risk and improves approval chances for a used car loan.

What are the documents needed for a used-car loan at Poonawalla Fincorp?

Proof of name and address, evidence of income, bank statements, and vehicle documentation, such as RC (Registration Certificate), insurance, and PUC (Pollution Under Control), are required for a used car loan at Poonawalla Fincorp.

Does the car's service record matter for loan eligibility?

Yes, a well-maintained service history can increase your chances of getting approval for a used car loan.