Interest rates on pre-owned car loans depend on several factors such as:
Debt-to-income ratio – The debt-to-income ratio compares a borrower's monthly debt payments to their gross monthly income. Banks use this ratio to assess a borrower's ability to manage monthly payments and determine their risk level. A lower DTI ratio indicates that a borrower has fewer existing financial obligations relative to their income, making them less risky to banks. Consequently, borrowers with lower DTIs may qualify for lower interest rates on loans because they are perceived as more likely to make timely payments.
Credit score & history – The credit history and score reflect a borrower's past financial behaviour, including their repayment history, credit utilisation, length of credit history, and types of credit accounts. Borrowers with excellent credit scores and a positive credit history are considered to be a lower risk by banks and typically qualify for lower interest rates. Conversely, borrowers with poor credit may face higher interest rates or struggle to secure a loan due to the higher perceived risk of default.
Income slab/bracket – The income slab or bracket refers to a borrower's annual income range. We use this information to gauge a borrower's ability to repay the loan and assess their financial stability.
Vehicle age & model –
• Certain makes and models hold their value better than others, which can affect the interest rate. Popular models with good reliability and resale value may qualify for lower interest rates because they are seen as less risky investments for banks.
• The age of the vehicle also plays a crucial role. Generally, newer used cars may qualify for lower interest rates compared to older ones. This is because newer vehicles have less wear and tear, are less likely to require costly repairs, and often come with manufacturer warranties, reducing the bank's risk.
Tenure of the loan – Shorter loan tenures often come with lower interest rates because they pose less risk to banks and result in less total interest paid over the life of the loan. In contrast, longer loan tenures may have higher interest rates to compensate for the increased risk of default and the extended period over which the bank's funds are tied up.