How is the Loan Amount for a Used Car Determined?

Did you know that the loan amount for a second-hand car depends on multiple factors. In this video, we break these down in detail for you to estimate how much financing you might get.

First, you’ll learn about the car’s age and condition—well-maintained, newer models generally qualify for higher loans. Here, the Current Market Value (CMV) plays a key role. It represents the car’s present worth based on depreciation, demand, and average market pricing.

We’ll also discuss how depreciation impacts the CMV—older, high-mileage, and poorly maintained cars lose value faster. Lenders use the CMV to calculate the Loan-to-Value (LTV) ratio, which determines what percentage of the car’s value can be financed. LTVs for used cars typically range from 70% to 90%.

Next, the video will explain how lenders use the LTV ratio to assess risk. A higher LTV means a lower down payment but could also mean stricter loan terms. Other factors like your debt-to-income ratio, repayment ability, and the amount of down payment can also influence the loan amount that you can get.

By understanding these elements, you can estimate your potential loan amount and plan your car purchase wisely. Stay tuned to Academy for more insights on used car loans!

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Key Takeaways

The loan amount for a used car depends primarily on the vehicle’s age and condition

The Current Market Value (CMV) refers to the car’s current worth and is used to determine the loan amount

Depreciation, mileage, car condition, and brand reputation can affect the CMV of a vehicle

The loan-to-value (LTV) ratio represents the loan amount as a percentage of the car’s market value

LTV ratios for used cars in India tend to range between 70% and 90%, impacting the required down payment

A lower debt-to-income ratio can improve your loan approval chances, as it reflects better financial stability

Higher down payments could reduce risks for lenders and help you secure favourable loan terms

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Lenders consider factors like the car’s age, condition, and Current Market Value (CMV). They also assess your credit score, income stability, existing debts, and loan tenure. All this plays a key role in determining a lender’s loan-to-value (LTV) ratio. Most lenders usually offer 70% to 90% of a used car’s CMV as a loan, with the rest as a down payment.

The CMV represents the car’s present worth after considering depreciation, mileage, and market trends. Lenders use it to determine how much loan they can offer. If the CMV is lower due to a second-hand car’s age, condition, or high mileage, the loan amount will also be lower. This means you will have to pay a higher down payment to buy it.

Depreciation reduces a car’s value over time. This affects its CMV and, in turn, the loan amount you can get. Older cars with more kilometres driven or visible wear and tear tend to have a lower CMV. Lenders prefer financing cars that retain some of their value, so heavily depreciated vehicles might fetch a lower LTV ratio or come with higher interest rates.

LTV ratio refers to the loan amount expressed as a percentage of a second-hand car’s CMV. For example, if the CMV is ₹14 Lakhs and the lender offers 70% LTV, it means that you can get a maximum loan of ₹9.8 Lakhs. However, an LTV of 80% means the maximum loan amount would be ₹11.2 Lakhs. A higher LTV means a lower upfront payment but may come with stricter loan terms.

A higher down payment lowers the lender’s risk and could lead to better loan terms, lower interest rates, and higher approval chances. If you pay more upfront, the loan amount reduces, which result in lower EMIs. Lenders generally require at least 10-30% down payment for a used car, depending on the car’s CMV and their set LTV.

Bajaj Finserv Direct Limited ("Bajaj Markets") offers to its customers, various financial products and services through its digital platform as a registered Corporate Agent with IRDAI, registered Investment Adviser with SEBI, and as DSA or Digital lending platform of its Partners. Further, Bajaj Markets also offers a marketplace e-commerce platform to facilitate transactions between customers and sellers on-boarded on the platform. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522 Corporate Agency (Composite) Registration no.CA0551 (valid till 10-Apr-2027) Investment Adviser, SEBI registration: INA000016083 (Validity - Aug 11, 2021 - Perpetual)

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