Used Car Loan

Saving up money quickly even for a used vehicle can be quite difficult. Therefore, if you want to buy a pre-owned car but do not want to put off saving for years, you can apply to a bank for a car loan. Let's discuss the pros and cons of a used car loan, whether it is better to take out a targeted loan or a regular consumer loan, and what is required to get a car loan.

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Pros and Cons of a Used Car Loan

The main advantage of a used vehicle loan is its accessibility. Such cars are significantly cheaper, making it easier to purchase them even on credit compared to new cars.
According to statistics, the average cost of a new car at the end of the previous year was twice as high as the average cost of a pre-owned vehicle.
Therefore, if you understand that the bank will not approve a large amount for you, or you do not want to get into a large debt, you can purchase a pre-owned car.
Among the disadvantages of buying a used car on credit is the presence of risk. Such a vehicle has already been in operation and therefore may have defects that the seller will likely hide from the buyer.
Such a risk will inevitably affect lending terms. Banks understand that a purchased vehicle may have certain defects and therefore set a higher interest rate in advance.
Another disadvantage is that when buying a used car, it is impossible to use the subsidized auto loan program, as it is designed exclusively for new cars produced in Russia.

Where to get a used car loan

Where you can get an auto loan depends directly on where you are purchasing the vehicle.

At a car dealership

If you are purchasing a vehicle at a dealership, you can choose a car that arrived via the trade-in program or buy a previously owned car that the dealership bought out.
In any case, all major dealerships offer the option to apply for a loan right on the spot. To do this, you need to submit a loan application through bank representatives.
If you do not want to apply for an auto loan at the dealership, you can contact a lending institution directly.

From an individual

If you are buying a car from an individual, you can only get an auto loan from a bank. To do this, you can submit an application on the lender's website or visit a branch in person.
However, it is worth noting that in this case the loan process will be somewhat more complicated, because first you will have to find a suitable car, agree with the seller on the price, determine the payment procedure, and only then apply to the bank.
The lending institution, in turn, will check your credit history and documents and assess the condition of the car. The bank may also require a car inspection to determine its market value and technical condition.
It is also worth noting that sellers often refuse buyers who want to buy a vehicle on credit, as not everyone is willing to spend time waiting for the bank's decision.

Which is better: a targeted auto loan or a regular consumer loan

The feature of a targeted loan is that it can only be spent for specific purposes. That is, if you take out a loan to buy a car, you will have to provide the bank with proof that you spent the money specifically on paying for the vehicle. If you do not do this, the bank will likely increase the interest rate on your agreement.
The feature of a consumer loan is that you can spend the received money at your own discretion. That is, you can use the funds as you see fit: to buy a car, pay for repairs, education, medical treatment, and so on.
To answer the question of which loan is better to take out—targeted or regular consumer—let's examine their differences:

1. Targeted loans offer lower interest rates. This is because the purchased property usually becomes collateral. This means banks can be sure that the loan will be repaid even if the borrower stops making monthly payments. A regular consumer loan is usually issued without any collateral, so the lender's risks are higher, and therefore the lending terms are worse. For example, the overpayment on a non-targeted loan usually reaches 40% per annum, on credit cards—60-70% per annum, and on microloans from MFIs—292% per annum. For targeted loans, the overpayment is significantly lower.
2. A targeted auto loan provides a larger loan amount. For example, you can get up to 30 million RUB or more. With a regular consumer loan, you will most likely be able to get no more than 5 million RUB.
3. The same applies to the loan term. For a targeted auto loan, it sometimes reaches 15 or even 30 years. For a regular consumer loan, the term rarely exceeds 5 years.

From the above, we can conclude that taking out a targeted auto loan is advantageous in the following cases:

• when planning a large and expensive purchase where the loan object will serve as collateral;
• when you need a large loan amount for a long term, for example, 10 million RUB for 15 years;
• when you have time to prepare the necessary documents—for example, for the collateral property.

Who can get a used car loan and what documents are required

Since taking out a used car loan usually involves pledging the vehicle as collateral, banks do not impose special requirements on their borrowers.
Usually, to get a car loan, it is enough to meet the following criteria set by lending institutions:

• have citizenship of the Russian Federation;
• have permanent registration, a place of actual residence, and a place of work within the territory of the Russian Federation;
• be at least 18 years old on the date of signing the loan agreement and no older than 75 years on the expected loan maturity date;
• have a work experience of at least 3 months at your current job and a total work experience of at least 1 year;
• have a steady source of income;
• have a salary sufficient to make monthly payments;
• have no overdue debts on current loans and borrowings;
• have no criminal record.

Usually, to get an auto loan for a used vehicle, it is enough to provide only a Russian passport and documents for the purchased car. At the same time, if you want to increase your chances of a positive decision on your application, you can provide certificates confirming your income and employment.

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Conclusion

If you want to buy a used vehicle but do not have your own savings, we recommend applying to a bank for a targeted auto loan. In this case, you will be able to get money at a lower interest rate than if you took out a regular consumer loan.
At the same time, to get money at a lower interest rate, we recommend purchasing vehicle insurance, as well as life and health insurance.