Getting a loan for purchasing a used car with high mileage can sometimes be challenging.
There are specific factors that lenders typically consider when approving a high-mileage used car loan. These factors include the remaining life of the used vehicle, the loan tenure, and the borrower's profile.
Borrowers considering used cars often opt for high-mileage models to maximise value while keeping costs affordable.
In this article, we get into the details of how financing usually works for high-mileage used cars. With this understanding, you can strengthen your profile to increase the likelihood of second-hand car loan approval.
Understanding the Relationship between Loan Approval and High-Mileage Cars
In India, lenders for high-mileage auto loans consider vehicles with over 1,00,000 km as high-mileage. Though this threshold is not exactly standardised/regulated (and more about market convention), some lenders begin to see serious risk only beyond 1,50,000 km.
High-mileage vehicles are usually perceived as higher risk by lenders since they are more prone to increased wear and tear, lower future residual value, and a likelihood of high maintenance costs.
Note: The mileage figures stated here are based on general lender practice, not government regulations.
How Do Lenders Assess Eligibility for a High-Mileage Car Loan?
Usually, some of the key criteria used to assess the eligibility of a loan application by lenders are given in the table below:
If the vehicle mileage exceeds the target set by the lender, they may decline the application.
Check vehicle age and financing restrictions to be sure.
A car with high mileage may have low resale value; hence, lenders usually approve only a small loan amount or less LTV.
This implies that borrowers may be required to make an initial down payment.
A high credit score increases the chances of approval and helps get more competitive interest rates.
With a lower credit score, borrowers may not get very competitive interest rates or they may have to seek lending from specialists such as non-banking finance companies (NBFCs).
Related Reading: To know more about financing high-mileage used cars, check out: ‘What is a good mileage on a used car?’ and understand the requirements necessary for financing a second hand car.
Credit Score Impact on Car Loans
Your CIBIL™ score, as well as that of other credit bureaus licensed by the Reserve Bank of India (RBI), is significant in determining whether you can be approved for a high-mileage used-car loan. Lenders usually consider credit scores to decide whether to finance high‑mileage used cars and at what terms.
Classification
(typical lender view)W
Certified Pre-Owned vs. High Mileage Cars
Many borrowers are unsure whether certified pre-owned (CPO) or high-mileage car financing is best for them. The following is the key difference:
- Certified pre-owned (CPO): Typically, newer, lower-mileage vehicles that pass an exhaustive inspection and often come with a manufacturer-supported warranty. CPO vehicles are usually easier to finance and offer less risk of expensive repairs, though you may pay more initially.
- High-mileage car: A high-mileage car isn’t certified pre-owned (CPO) and is usually cheaper, but it often comes with higher running costs and a greater risk of mechanical issues.
Key Challenges in Financing Used Cars with High Mileage
There are various financing challenges for older cars. Some of them include:
- More stringent eligibility: The loan eligibility for high-mileage cars may be tighter as they represent a higher risk to lenders.
- Higher interest rates: Used car loans with high-mileage vehicles often attract higher interest rates to compensate lenders for the increased risk of potential mechanical issues and lower resale value.
- Shorter loan duration/tenures: Lenders often restrict loan tenures to ensure the repayment period doesn’t exceed the vehicle’s remaining useful life, reducing the risk of default as the car ages.
- Higher upfront costs due to reduced loan-to-value (LTV) ratios: Lenders may only finance a lower percentage of the vehicle's value, expecting the borrower to pay a larger down payment.
- Affordability of repayments: Higher interest rates, shorter terms, and larger down payments will result in higher monthly repayment amounts.
How to Improve the Chances of Loan Approval for a High-Mileage Used Car?
Borrowers often use the following methods to improve their chances of high-mileage used car loan approval:
- Make a larger down payment: Saving more upfront reduces the lender’s risk, improving your chances of securing lower interest rates and better loan terms.
- Check and improve CIBIL™ score: Clear past dues, correct report errors, and avoid multiple hard credit checks to strengthen your credit profile before applying.
- Choose a specialised lender: Look for lenders that specialise in high-mileage used car loans.
- Get the car checked: A recent professional check or certification may help reduce anxiety about potential hidden mechanical issues.
- Choose a shorter loan tenure: Select a loan term that aligns with the used car's expected lifespan to make qualifying easier.
Step-by-Step Process for Financing a High-Mileage Used Car
Here are the steps you may take to purchase a high-mileage used car with a loan:
- Evaluate the vehicle: Assess service history, ask for a pre-purchase inspection, and assess the total cost of ownership for financing a used car.
- Check with lenders' policies: Specifically, check the age and mileage caps for auto loans for vehicles with high mileage.
- Gather documentation: Prepare evidence of income, CIBIL™ report, down payment for older vehicles, and vehicle report.
- Apply for the application: Submit the request to targeted lenders.
- Negotiate terms: Clarify unclear add-ons, interest rate and repayment/loan plans for the best finance schemes for a high-mileage used car.
- Close and insure/car warrants: Sign and finalised documentation, agree to insurance and warranty timelines, and warranty first.
Can High-Mileage Used Cars be Re-Financed Down the Line?
Since high-mileage used cars typically continue to depreciate, the LTV ratios may not be very high. For financed high-mileage vehicles, usually, only speciality lenders will consider your refinancing application. But remember that you will need to consider the condition of the car at the time of refinance, the current principal balance, and the overall current interest rates for your region.
Key Takeaways on Financing High-Mileage Used Cars
Buying a high-mileage used car on loan may help you keep a check on your vehicle budget. Always make sure to check the fine print for any restrictions the lender may have on the age and mileage of a high-mileage vehicle. Although you can get an auto loan for a high-mileage vehicle, there are a few considerations, including higher down payment percentages and the total cost of ownership for used vehicles. It is essential to understand the requirements and choose the terms that best align with your budget.
Shriram Finance provides used car loans at competitive interest rates. Visit our website to learn more and begin your application.
FAQs
1.Should I consider personal loans for a high-mileage car?
Yes, some borrowers use personal loans to finance used cars with high mileage, since they typically do not have any age or mileage restrictions for the vehicle. But it is important to remember that personal loans may have higher interest rates as they are usually considered riskier for the lender.
2.Do warranties or insurance options affect financing for vehicles with high mileage?
Sometimes, lenders may view an extended warranty for high-mileage cars favourably, as it reduces the risk in the years following your purchase. The insurance company may charge a higher premium, but it’s always wise to compare quotes from multiple insurers before deciding.
3.What can I do to increase my chances of having a loan approved for a car that has high mileage?
A higher down payment, strong CIBIL™ score, and a thorough pre-purchase inspection or certification may significantly improve your chances of getting an auto loan for an older vehicle that has high-mileage.
4.Does a car’s resale value depreciate due to high mileage impact loan terms?
Typically, yes. If a car depreciates too quickly, the resale value of used cars will decline. This may usually result in lenders offering a lower LTV ratio or a shorter loan tenure to reduce their risk.
5.Do high-mileage cars require a pre-purchase inspection for financing?
It is common for lenders to request that a high-mileage vehicle be inspected or serviced recently before approving a high-mileage used car loan. This process will help identify potential issues that need to be considered in the lender’s risk assessment.