5 Smart Financial Steps to Take Before Buying a Used Car

The​‍​‌‍​‍‌​‍​‌‍​‍‌ majority of us envision having our own vehicle to roam around, but when the budget is limited—and the price of new cars keeps going up—used cars can be a very attractive way to get the freedom you want quickly. Anyway, there is a catch: getting a used-car deal without being financially prepared is like going on a road trip with a leaky fuel tank—at some point, it will definitely catch up with you. The positive side? Five real, doable steps can help you avoid the typical money traps and go out with confidence (and money left over).

Continue reading to find out the five tested financial steps that will be supported by examples, mini checklists, and expert tips for smartly buying a used car.

Why Rushing Into a Used Car Is Risky

Risks associated with buying a used car in a rush are not limited to just failing to get a “good deal”. Typically, first-time buyers in India, as examples, fall into the trap of hidden charges, do not consider insurance and transfer fees, skip the loan fine print, and end up with unexpected repair bills. Mistakes that are most commonly made are neglecting the total cost of ownership, not conducting a professional inspection, and not verifying the paperwork. These mistakes can be very costly and can affect your finances even months or years after the ​‍​‌‍​‍‌​‍​‌‍​‍‌purchase.​

Since the interest rates on loans for used cars are even higher than for new cars, missing any step is extremely important, right from knowing the costs involved and certain lenders’ documentation requirements. A rushed choice only increases interest rates and stress, and a study from CRIF High Mark shows that NBFCs' used car loans are on average 11%-14% annually.

The 5 Smart Financial Steps (Used Car Buying Checklist)

1. Check Your Credit Score & Borrowing Capacity

Action: Review your CIBIL score and clean your credit prior to a loan application.

Why It Matters: NBFCs want used car loan CIBILs to be 700, and for banks to be 750 or higher. Some lenders like Muthoot Capital may approve lower scores, but at slightly higher rates.

How to: Get your credit report for free at least two months prior, and if there are any errors, dispute them. Pay any outstanding bills to increase your score, and to help with outstanding loans, if any, try to keep your monthly EMI to less than 10% of your monthly net income.

2. Create a Realistic Budget & Total Cost Estimate

Action: Put the budget not only for the car price but also includes everything you are going to spend by a rupee: insurance, taxes, all repairs, and regular servicing.

Why It Matters: It is a very common situation when buyers only focus on the car's sticker price; after that, they are surprised by the registration tax, insurance transfer, minor repairs, or mandatory upgrades costs, which they hadn't thought of. We warn that disregarding these expenses leads to spending beyond one's means and then feeling regret.​

• Follow the limitations of the "20-10-4" rule: 20% down payment, EMI should be no more than 10% of the income, and the loan tenure should not be more than 4 years.​
• Find out car registration fees in your area (it depends on the state), insurance charges (₹10K–20K/year for models that are a few years old), and the costs of the first car service you will have to pay after buying the vehicle.

3. Get a Full Vehicle Inspection & History Report

Action: Arrange a professional inspection of a vehicle in your own time, even if the car is clean and shiny and do not give up on getting a vehicle history report.

Why It Matters: After​‍​‌‍​‍‌​‍​‌‍​‍‌ the purchase, these hidden problems, such as odometer fraud, insurance write-offs, or accidents that happened in the past, can gradually decrease your wallet quite a lot.​

• Besides just glancing at the Registration Certificate (RC), insurance, emission, and service records, check the car physically for any discrepancies.​
• Cross-verify the service history by using the VIN mentioned on the maintenance records.
• Set the money aside at least ₹10,000–₹20,000 for the repairs that may happen after buying the car (this is the average in case of second-hand vehicles in ​‍​‌‍​‍‌​‍​‌‍​‍‌India).

4. Compare Financing Options (Loans, Rates, & Terms)

Action: Compare costs and other terms and shop for pre-approved second-hand car loans from banks, NBFCs like Muthoot Capital, and dealer lenders.

Why It Matters: NBFCs like Muthoot Capital are a bit faster and more flexible and tend to work better for people with lower credit scores and/or limited income proofs, which is common for self-employed folks, while banks offer lower rates but are more stringent with approvals (typically in the 9%-12% range).

How To: Collect quotes from banks (often more paperwork, but lower rates) and NBFCs (often more expensive and faster, but flexible). Assess the cost more accurately by making sure to include processing fees, insurance bundling, and other “hidden” fees in your comparison. Pre-approved offers will also be great to have with you for negotiating.

5. Negotiate Smartly & Safeguard Your Purchase

Action: Have a good grip on the price trend data and bring it to your negotiation conversation, talk about the total amount (not only the EMI) to be reduced and also consider the warranty/ transfer fees in your calculations.

Why It Matters: Often, sellers try to lure buyers with "lowest EMI" offers, which may have an inflated loan cost or some bundled add-ons. So, if you want to have a worry-free usage, buy either a manufacturer-backed warranty or a reputable aftermarket plan.​

Also Read: Missed a Car Loan Payment? Here’s What You Should Do

• Negotiate using factors such as the car's age, mileage, and service records—take the help of the internet to get prices for similar cars.
• Be thorough with the transfer papers; make sure the seller pays off a loan if any is remaining.
• Before you drive the vehicle home, make sure the insurance is either transferred or renewed.

Final Thoughts: Prep Is Your Best Investment

If you are financially well-prepared, then the purchase of a second-hand car in India will be a very simple and smooth process. By executing these five steps, you can avoid unexpected situations, follow your budget, and make a decision that you will be proud of for a long time. ​‍​‌‍​‍‌​‍​‌‍​‍‌ The Muthoot Capital team is always there for you without any obligation if you need some assistance with used car financing, friendly advice, or a free eligibility ​‍​‌‍​‍‌​‍​‌‍​‍‌check.