Of late, cab services have become hugely popular among urban folk. Mohit’s friend had made a fair amount of money by partnering with one of the cab services. After paying royalty to brand and the driver’s salary, his friend was able to save quite a few thousand bucks every month. Mohit was intrigued with the idea and was hoping to make extra money the same way. He planned to buy a second hand car and use it as a cab. The problem was he already had an auto loan for his existing car. He wasn’t sure if taking a second car loan that too for a used car would be advisable.
Most people feel a bit sceptical when it comes to taking loans. Still, car loans are a very common debt product. While people wouldn’t mind taking on the responsibility of a car loan for a new car, they often wonder whether a second hand car loan is a prudent choice. So before you wheel in a second hand car read this article.
When buying a used car you look at make of the car, the year it was made, fuel type, kms driven, whether it has ever met with an accident, insurance cost and its fair market value. Among these there is another burning question, should you take a car loan to purchase it? As with everything else in life, a used car loan has its own set of positives and negatives. Let us examine them from Mohit’s perspective.
For example, in Mohit’s case this used car loan will help him in starting out with a new business venture. The interest can be treated as business expense and therefore, taking a loan will help him achieve his objectives.
Whereas, a used car loan interest rate would be lower as it is a secured loan. So taking a lower ROI loan is more sensible than using own funds today and taking a costlier loan later.
A used car loan has a better chance of helping Mohit’s CIBIL score than taking a personal loan. Not to forget that if he would not service his used car loan properly, it will have a detrimental impact on his CIBIL score, just as any other loan would.
The common wisdom passed down over the ages suggests you to stay away from debt products. But in today’s exorbitant times it is nearly impossible to do without loans. Sometimes, handed down cars are not that expensive and you might feel you can pay for them in cash. But remember to consider the opportunities of investment that you will lose should you pay with cash.
At times, taking a loan would seem wiser but do so only if you are prepared to deal with its responsibility. Factor in the additional costs of maintenance and insurance. Like in Mohit’s case, he will not only have to bear EMIs and the driver’s salary, but a second hand car which has already faced some wear and tear would ask for higher maintenance cost and therefore a higher insurance premium. He must add up all these before deciding what to do.
So whether a used car loan would make sense to you or not should depend on the cost & benefit analysis.
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