Lenders typically consider the car’s make, model, age, mileage and condition, along with its insurance IDV and registration certificate (RC) and RTO records.
These checks help establish the vehicle’s value and identify issues such as ownership disputes or existing hypothecation, according to Sumit Singla, CEO of rupyy, a specialised digital lending and financial services platform operated as a fintech venture of the CarDekho Group.
Used-car loans typically have a loan-to-value (LTV) ratio of around 70-85%, compared with about 85-95% for new cars, Singla said. So, if a car is valued at ₹10 lakh and the lender applies a 70% LTV, the loan would be capped at ₹7 lakh.
The borrower’s income, existing obligations, credit history and repayment capacity also determine the final loan amount. Interest rates can vary based on the borrower’s profile, vehicle age, income stability and tenure, with used-car loans generally carrying higher rates than new-car loans.
Why the vehicle matters
With a used car, the lender also has to assess how easily the vehicle could be resold in case of a default.
Kapil Makhija, COO at MinEMI, an AI-driven Indian financial technology platform and loan marketplace, said factors such as the car’s age, resale market, insurance history and brand can influence the lender’s assessment. An older vehicle or one from a brand that has exited India could face a longer valuation process, lower LTV or a higher rate.
“A new-car loan has an invoice, so the resale question never arises. In used cars, the car is being underwritten as much as you are,” Makhija said.Look beyond the headline rate
Borrowers should first check whether the interest rate is calculated on a reducing-balance or flat-rate basis. They should then compare the overall cost, including processing, documentation, valuation, RC/hypothecation and prepayment or foreclosure charges, Singla said.
Tenure also matters. A longer tenure may reduce the EMI but increase the overall interest outgo and could mean continuing to repay the loan even as the vehicle depreciates.
Makhija said buyers should also compare alternatives such as a home-loan top-up, loan against a fixed deposit or mutual funds, or a personal loan, depending on their eligibility and cost.
He also cautioned that a car loan EMI can affect future borrowing capacity. A loan that appears affordable today could reduce the repayment capacity available for a home loan later.
For buyers, the key is therefore to compare the total borrowing cost, LTV, tenure and charges, rather than choosing a loan solely on the basis of the lowest EMI or advertised interest rate.
