Is it worth buying a used car on credit?

At first glance, a loan to buy a used car seems like an attractive solution if you have a limited budget. However, before making a decision, you should carefully weigh all the risks and compare the pros and cons.

Let’s try to figure out whether it’s worth taking a car in installments or on credit, whether there are alternative options, and how to buy a used car profitably, saving money and time.

Car loan for a used car: what you need to know

Requirements for the borrower

Banks and credit organizations impose a number of conditions on those who want to take out a loan for a used car. The main ones are:

• Stable income: it is necessary to confirm the availability of regular income – this can be a certificate from work, an employment contract, or a bank account statement.
• Credit history: a positive image of interaction with banks significantly increases the chances of loan approval.
• Residence or registration: some banks may require permanent or temporary registration in the region where the loan is being taken out.
• Down payment: usually, you need to pay from 10-20% of the cost of the car, although in some cases banks offer loans without a down payment.
• Employment history: to confirm the reliability of the borrower, some institutions require official employment for more than 6 months or registration as a sole proprietor for more than two years.

Loan terms and interest rates

The terms of used car lending vary from bank to bank, but a general trend can be identified:

• Interest rate: for a used car on credit, it is usually higher than for a new one, and ranges from 10-50% per annum. The older the car, the higher the rate can be because of the risk to the bank.

PrivatBank, for example, offers a progressive rate scale depending on the age of the car and the down payment:

• Term: from 1 to 7 years. A shorter term means a lower overpayment, but higher monthly payments.
• Loan amount: banks often limit the maximum amount depending on the age of the car (e.g., not older than 10-15 years) and its market value.
• Additional costs: fees for issuing a loan, car valuation, or opening an account may also be included in the terms and conditions.

Read also:
What is a car subscription and why is this service gaining popularity in Ukraine?

Comparative table of interest rates on car loans in Ukrainian banks:

How do banks and credit organizations give a loan for a used car?

The process of getting a used car on credit has its own peculiarities:

• Car requirements: banks set age and mileage limits. These requirements vary from institution to institution, but as a rule, you cannot take out a loan for a car older than 10 years. There may also be requirements for the country of manufacture or brand.

• Analysis of the borrower: the bank assesses solvency, the ratio of income and expenses (usually the monthly payment should not exceed 40-50% of income).
• Choosing a car: some banks allow you to buy a car only in partner car dealerships, while others can issue a loan to buy a car from a private individual, subject to a thorough check.

Advantages and disadvantages of a car loan for a used car

Advantages

• The opportunity to get a car immediately without full payment: the car loan procedure is an ideal option for those who do not have enough money or do not want to spend all the money on a car. After paying the first installment, you can drive the car right away, and repay the rest gradually. 
• Flexible lending terms: as we have already mentioned, there is a wide variety of terms, conditions, and rates on offer. All you have to do is choose where it is most profitable to get a car loan
• Loan without a large down payment: some institutions have the opportunity to buy a car with a minimum down payment (sometimes even zero), which reduces the financial burden.

Read also:
Car leasing: what is it and how does it work for individuals?

Disadvantages

• High interest rates and overpayments: used car loan rates are higher than for new cars, and additional costs for commissions or insurance (CASCO) also increase the total amount of overpayment.
• Restrictions on the age of the car: most banks lend cars no older than 10 years at the time of repayment. This significantly narrows the choice of transportation
• Risks when buying a used car: used cars can have hidden defects (engine wear, accident consequences) that are difficult to detect even during diagnostics. In addition, there is a risk of legal problems if you don’t check carefully: the car may be pledged, seized, or have a broken VIN code.

What is more profitable: a car loan or a consumer loan?

• Car loan: a targeted loan that is issued exclusively for the purchase of a car. The vehicle becomes the bank’s collateral. An initial payment is required for the loan.
• Consumer loan: A non-purposeful cash loan that can be spent on anything, including a car. It does not require collateral, but has higher interest rates and less flexible terms.

When it is profitable to take a used car on credit

• If you need a specific car and are ready to take it as collateral.
• You can make a down payment.
• The bank offers favorable terms and a low interest rate.

When is it better to take out a consumer loan?

• You want to take a car in installments from a private person, not a dealership.
• The car is more than 10-15 years old and is subject to bank restrictions.
• You need freedom of action: using money without collateral and additional conditions, taking a car loan without a credit history, etc. 
• You have the option to repay the loan quickly to minimize overpayment at high rates.

An option to replace a car loan — car leasing

If you see a high risk in buying a car on credit, consider a modern alternative — car leasing.

What is car leasing and how it works?

Leasing is a long-term rental with an option to buy. You make an initial payment (down payment), pay a fixed amount every month, and at the end of the term, you can buy the car at the residual value or return it. All this time, the car legally belongs to the lessor, but you use it as the owner.

The main advantages of leasing over a car loan

• Lower monthly payments: the cost of a car loan with interest will be higher than leasing, as it includes monthly contributions to the pension fund, insurance, etc. Leasing a car involves only a usage fee: lower and more predictable monthly expenses. 
• Flexible repurchase terms: you can buy back the car, return it, or take a new one at the end of the contract — the choice is yours.
• Minimal maintenance and insurance costs: the lessor takes care of insurance, maintenance, and even tire replacement, which reduces your hassle and costs.
• No paperwork: no need to collect dozens of documents or undergo complex bank checks. It’s like a car loan with no rejection: you don’t have to worry about your credit history or restrictions on your choice of vehicle.
• Impossibility of seizure or pledge of property: since the car legally belongs to the leasing company, it cannot be seized or taken away for debts.

Who can lease a car?

• Individuals: adult citizens of Ukraine can borrow used cars in installments, provided they are solvent. 
• Entrepreneurs and companies: leasing a used car is a popular service for businesses because of the ability to update their fleet more often.

How to make the right decision?

Is a car loan profitable or not? And what to choose if you have limited finances? Consider a few key points:

Assessment of financial capabilities

Before you take out a car, crossover or SUV loan, honestly assess your budget. Are you ready to make an upfront payment and monthly payments?

For example, a cheap budget hatchback may be relatively inexpensive, but the interest on the loan will still increase its real price. A family minivan or crossover will require higher insurance and maintenance costs. Calculate how much you can allocate each month without sacrificing your basic needs.

Comparison of loan programs and leasing

• A car loan is a good option if you want to own a car right away. But in reality, high interest rates and a substantial down payment make a car loan an expensive “pleasure.” In addition, you bear all the risks of servicing and monitoring the technical condition of the car.
• Leasing: ideal for those who want a passenger vehicle without a large down payment. Monthly payments are lower, and the leasing company takes care of the maintenance.

So: if your financial resources are limited and you need a car right now without overpayments and a large down payment, leasing looks more attractive.

You should consider a loan only if you plan to use the car for a long time and are ready to incur additional costs — interest, insurance, repairs, etc.

Buying a car is always a balance between desires and possibilities. If you want to buy a used car in Ukraine profitably, choose leasing. This is the most practical solution: lower payments, no maintenance hassles, and flexibility in repurchase. For those looking for savings and comfort without long-term commitments, leasing is the best choice. Contact us and we will help you find the car of your dreams on favorable terms!