Is it better to upgrade your car using a second-hand car loan?

When thinking of upgrading your four-wheeler, many hesitate because of the massive upfront costs involved. If you wish to upgrade your car to a more expensive brand or model, purchasing a brand-new car may sometimes not be the best option. It can be economical to use a pre-owned car loan to purchase a higher segment vehicle. This can be a great upgrade for you. At the same time, you do not end up paying too much out of pocket either. So, let’s dive deeper to understand if it is better to upgrade your car using a pre-owned car loan.

Understanding car upgrades and financial implications

The term upgrade, as it suggests, is to replace your existing car with one that has more features, better safety, and higher performance, as well as overall better reliability and appeal.

But such an upgrade often means selling off your existing car at a depreciated value and then shelling out more money to purchase a better car.

However, if you buy a second-hand car with the funds obtained from selling your existing car, you may have to spend less.

Moreover, doing so with the help of a second-hand car loan is even better as it breaks down the high upfront cost into affordable equated monthly instalments (EMIs).

When upgrading becomes a practical decision

The real question is, when should you upgrade your car using such a car loan? Here are a few things that indicate, it is time to upgrade your car.

• Frequent and high repair costs incurred for your car.
• Need for a car with a higher seating capacity.
• Increased travel necessities with better fuel efficiency.
• Upgrading lifestyle with better and more advanced features.

If you experience any of the above, it may be time to start exploring used car loan interest rates being offered by different banks.

Cost factors involved in financing

So, before you start the application process for a used car loan, you need to understand the factors that influence the costs of borrowing.

• The interest rate impacts the total amount to be repaid after the loan tenure.
• The longer the loan tenure, the higher the accumulated interest to be paid.
• A larger down payment reduces the loan principal and reduces monthly EMIs.
• Do not forget to factor in the costs of insurance, maintenance, and registration.
• Upon considering all of these factors, you should get your existing car valued by the same dealer thar you are purchasing the second-hand car from.

Evaluating loan structures and repayment

To evaluate whether it is better to upgrade to a higher-segment second-hand car, you should also look at the loan structures and repayment options offered by lending institutions.

• Interest rates on second-hand car loans are fixed and not floating.
• In case the loan has a floating interest rate, your final vehicle condition matters.
• Taking on the loan for shorter tenures can increase the EMI amounts greatly.
• On the contrary, a longer loan tenure increases the total interest paid.
• Besides, there are several advantages and disadvantages of used car loans.

Advantages and limitations of financing

Why take used car loans from Banks?

While there are many lending institutions, such as non-banking financial companies (NBFCs), it is always better to take a used car loan from a government-recognised banking institution. IDFC FIRST Bank is one such institution that offers lower interest rates on used car loans, as low as 11.99% on used car loan and 13.99% on refinance loans.

The Takeaway

When thinking of upgrading your vehicle, going for a higher-segment used vehicle seems to be an intelligent option. More so, taking on a used car loan to finance such a purchase can be even more affordable.