Used-car loan traps: How to reduce borrowing risks, keep EMIs manageable
Published by Business Standard
Abhishek Kumar's role: Quoted
Abhishek Kumar said a 36 to 48 month tenure can balance cash flow with the car's remaining life, suggested a 20–30% down payment, and said total vehicle costs should stay within 15–20% of net monthly income.
What Abhishek Kumar said
What loan tenure makes sense for a used car?
For a used car, I suggest a tenure of somewhere between 36 and 48 months. In my view that range strikes a sensible balance: the monthly instalment stays manageable for your cash flow, and the loan is still repaid within the years the vehicle is likely to remain in use.
How much down payment should I make on a used-car loan?
I suggest putting down 20 to 30 per cent of the price yourself. A down payment in that range reduces how much you need to borrow, which keeps the instalment and the interest in check on a car that is already losing value, and it lowers the chance of owing the lender more than the car is worth.
How much of my income should go on running a car, including the EMI?
I suggest keeping everything you spend on the vehicle within 15 to 20 per cent of your monthly take-home income. That limit should cover not just the EMI but also the insurance premium and routine servicing and upkeep, because those running costs add up month after month.
Which costs beyond the interest rate should I check before taking a used-car loan?
Beyond the headline rate, look at what the vehicle valuation will cost you and whether the lender is making you buy insurance through it as a condition of the loan. Both can push up what owning the car really costs you overall, so I suggest checking them before you sign.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on debt and loans
This article looks at the growth of used-car loans in India and what borrowers should weigh before taking one. It covers higher interest rates, conservative loan-to-value ratios, the effect of a car's age on tenure, down payment choices, overall debt limits and comparing the full cost across lenders.
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Used-car loan traps: How to reduce borrowing risks, keep EMIs manageable