Owning a car offers a sense of control, adds convenience, and provides flexibility for your daily transportation needs. But buying a used car with upfront payments may be a significant challenge we face, especially without adequate savings. An unsecured loan from banks, non-banking financial companies (NBFCs), or other financial institutions allows you to finance the purchase of a used car over scheduled instalments.
Unlike a personal loan for car purchase, unsecured financing does not require collateral and offers many benefits for the smart car buyer. This article will explain the benefits of unsecured used car loan and highlight the top advantages of choosing this financing option for your used car purchase.
What Is an Unsecured Loan?
An unsecured loan is a type of loan you can get without pledging any asset as collateral, like your house, car, or savings. Instead, the lender decides your eligibility based on your credit score, income, and ability to repay. Several banks and Non-banking financial companies (NBFCs) offer unsecured used car loans. This means you can finance a used car purchase without having to use the car or any other asset as security.
Top 5 Benefits of Unsecured Used Car Loan
Here are some of the top benefits of unsecured used car loan:
1. Faster Approval
Since an unsecured used car loan does not require you to pledge any assets as collateral, the application and approval process is much faster. You simply fill out a simple application form either online or by visiting a bank or NBFC branch. The loan provider will check factors such as your income, existing debts, and credit score to evaluate your repayment capacity.
Within a few hours or days, you will get a loan decision without lengthy property appraisals and paperwork. Once your unsecured loan is approved, you can start searching for your used car right away.
2. Flexible Interest Rates
An additional benefit of used car loans is the ability to negotiate and choose between fixed or variable interest rates on unsecured loans. Leading lenders let you choose a fixed interest rate at the start of the loan to protect against future rate increases. Or, you can choose a floating rate tied to a benchmark, which may go down and save you money during the loan term.
Choosing fixed or variable car loan rates lets you pick the option that best fits your budget and how you expect interest rates to change.
3. Improve Your Credit Score
An unsecured used car loan can help build your credit score since it shows loan providers you can responsibly manage credit without the collateral support. Making monthly payments on time shows you reliably honour your debts and financial agreements. After even 6-12 months of consistent payments, you may see your score rise up.
A higher score makes you eligible for future loans at better interest rates and tenures, saving you money in the future.
4. Customise Loan Amount and Tenure
With an unsecured loan for a used car, you get more flexibility than traditional auto financing, and you can borrow only the funds you require. For example, if the car costs ₹3,00,000 you can borrow ₹2,00,000 and pay the rest from savings. This lowers your interest costs.
You can also choose a repayment duration at your convenience. A shorter 1-3 year period has lower total interest fees but higher Equated Monthly Instalment (EMIs). Select terms that match your budget and financial situation.
5. Minimal Prepayment Costs
Most secured car loans charge steep penalty fees if you pay off the pending loan amount early or foreclose your loan. However, unsecured used car financing usually does not levy such high pre-closure charges. This gives you the flexibility to pay more than the minimum EMI amount to clear debt faster without worrying about penalties. Putting in bonus payments saves on total interest expenses.
How to Get the Most Affordable Used Car Loan?
The interest rates and fees on used car loans can vary widely between different financial institutions. Compare quotes from multiple loan providers to find the best loan offer. Online lending marketplaces allows you to check rates from many lenders with a single application. Avoid applying to too many places, as multiple inquiries can temporarily lower your credit score.
A higher credit score, lower loan amount, and shorter repayment term will qualify you for the lowest interest rate. A good point to consider is to get yourself a co-applicant with a good credit.
You may also consider paying a higher sown payment amount for securing better rates and better loan terms. Ensure that you carefully read the terms of the loan agreement before signing.
Conclusion
An unsecured used car loan offers affordable financing for purchasing used cars. To find the best fit for your needs, compare various loan providers to find the most competitive rates with tailored repayment plans. Managing the loan properly helps build your credit history over time.
