5 important factors that will help to choose between personal and used car loans while buying your pre-owned luxury car

Buying a luxury car is today is proving to be as difficult as it is easy. It is easy because you can get exactly what you want and at the price you want. It is difficult because there are too many choices and options at every step of the way and it can get confusing. You will have to decide on the make and model of your car, and also decide whether you want to buy a new or used car. If you think it over well, this is one of the most important decisions and it can make a big difference in your finances over the next several years. It is important to realize and remember that buying a car is not an investment.

n cities like Mumbai, with traffic and conditions of roads not very favourable, being inside a luxury car can make a world of difference to the ride. However for the very same reasons it make sense to go for a second hand luxury car and enjoy the same comforts and benefits for much lesser the price. Among the renowned dealers in Mumbai, Autohangar Advantage stands out as the most reliable second hand automobile dealership in Mumbai. With their over 30 years association with Mercedes-Benz, they are certified used mercedes benz dealers in Mumbai.

The biggest advantage of buying a used luxury car is that you minimize the depreciation hit on the car. You may be able to sell your car for nearly the same amount you paid for it in the next few years depending upon the state of the car at the time of sales (* subject to valuation)

Another advantage is that insurance rates on a used car will be lower than on a new one. If you are in your early twenties and paying high insurance rates because of your age, going for a used luxury car may lead to a significant amount of savings.

The market for used luxury cars in Mumbai is huge. However, according to a survey last year only 15% of the used cars sold were financed through used-car loans. Some of the major reasons identified for such a low number of used car loans include a lower market-share of organized players; complicated loan documentation and car valuation process; and inferior product features of pre-owned car loans in comparison to alternatives like personal loans.

The customer-friendly features of personal loans are attracting customers towards it for financing their used car purchase.

So when you have chosen your second hand luxury car and also the best authorised pre owned luxury car dealer, and all you need to do is sort out your loan, it would be helpful for you to keep these 5 factors in mind. These will help you to choose between a personal loan and a used-car loan.

• Interest rate: The interest rates of personal loans can range between 10.99% and 24% while those of used car loans can be as low as 9.15% p.a. However, such low interest rates of used car loans are limited to select PSU banks. Rates of private lenders usually start from 13% p.a. As lenders set personal loan interest rates on the basis of your credit score, annual income, employer, and loan amount, a personal loan can prove to be a cheaper option for those having a good credit score and/or employed with a reputed organization.
• Loan Amount: Generally, used car lenders do their own valuation and lend up to 70%-90% of the value they arrive at or the amount the insured's declared value (IDV) states. This valuation can be significantly lower than the purchase price of the car. In this case, your own contribution towards the purchase price can be quite substantial. For example, if you are planning to purchase a used car for Rs. 5 lakh and your used car lender who is lending up to 80% of the car's cost, values your car at Rs. 4 lakh, then you can avail a loan of only up to Rs 3.2 lakh (80% of Rs 4 lakh). The rest Rs 1.8 lakh will have to be financed from your own sources.
  
  However, a personal loan amount is not dependent not on your car's valuation and you can finance the entire amount through it, as long as your loan eligibility allows you to do so.
• Loan tenure:Both personal loans and used car loans offer a maximum tenure of up to 5 years. However, the tenure of used car loans may also depend on the age and condition of the car. For example, HDFC Bank offers a maximum loan tenure of up to 5 years but it wants it to be repaid within 10 years of the car's original invoice date. Therefore, if you finance a 6-year old car through HDFC Bank, then you will have complete loan repayment within 4 years. However, if you avail a personal loan from the same lender to finance that used car, you will have up to 5 years to repay the loan, irrespective of the age and condition of that car.
• Credit score: Here, it is the used car loan that scores over a personal loan. For personal loans, credit score plays an important role in the approval process, while for used car loans, lenders usually do not give much value to credit scores while processing. Thus, borrowers having poor credit score may find it easier to avail used car loans.
• Loan approval process: The approval and disbursal of personal loans is much quicker than used car loans. Personal loans are generally disbursed within 2-5 days of loan application, used car loans take at least a week to be disbursed. The loan processing can be especially tedious if the pre-owned car is bought from an unorganized player.

As both used car loans and personal loans have their own merits and demerits, a customer should choose the one that works best in terms of cost, approval chances, processing time and loan amount.