How do lenders evaluate loan risk for high-mileage used vehicles?

When we discuss high mileage used vehicles, banks and NBFCs are quite conservative when offering loans. High-mileage vehicles are usually seen as a more of a risk than lower mileage vehicles. This is simply because they are more likely to incur mechanical faults, and depreciation is higher on high mileage vehicles. This risk will influence funding terms and eligibility.

Here is how lenders generally look at high mileage used cars:

• Examination of Service and Maintenance History - Lenders will look at the service history of a used car to see how well it has been maintained. A good service maintenance history documentation can also improve your position.
• Full Physical Inspection - When lending on a used car, the lender will have a qualified professional inspect the vehicle in full and also check the condition of the vehicle. This includes checking items like the engine, transmission, brakes, tyres etc. If any of these defects come out, in terms of wear and tear or major work, it will affect the lender's decision.
• Assessment of Resale Value - Lenders will look at the vehicle market value determined by make, model, age and mileage.

Because of the risk elements above, high mileage vehicles are assessed for more lending restrictions, such as:

• Higher interest charges marked up to cover lenders of risk - Lender increased their profit due to interest
• Lower loan-to-value (LTV) ratio will require a larger cash deposit
• Shorter loan term
• Increase documentation

In some cases, if the vehicle mileage exceeds the target set by the lender, they may decline the application.