Difference between new car loan and used car loan
Last Modified: 16-May-2022
The Covid-19 pandemic failed to dampen the zeal of automobile buyers. The financial year 2020-21 saw a growth of Rs. 18,800 crores in automobile loans between January and November.
Even during difficult times of salary cuts and layoffs, the higher-priced models of cars, such as SUVs, sold more than others.
Approximately 80% of car buyers prefer to get finance on their purchase and this percentage goes up to almost 100% for commercial vehicles.
People planning to buy a car on loan may get confused between opting for a new car loan or a used car loan.
Difference between a new car loan and a used car loan
While both may look similar on the surface, there are several differences between a new car loan and a used car loan which may affect the buying decision of the customer.
Here is your guide to new and used car loan interest rates and other features.
Nature of loan:
The first decision that a buyer needs to make is if he wants to buy a new car or a second-hand car. Buyers who opt for a well-maintained used car can choose a higher model of the car since a used car costs less than a new car.
Buyers opt for a new car loan if they want to buy a new car. Used car loans or pre-owned car loans are taken by buyers planning to opt for a second-hand car.
People opting for a new car loan can get a loan of up to 80-85% of the ex-showroom price of the car. With a reputable lender like Muthoot Capital, a used car loan amount can go as high as 100% of the price of the car for certain car models under different loan schemes.
A new model of the same car will cost the buyer more than its second-hand version. Thus, for the same brand and features in a car, a buyer needs a higher loan amount for a new car than a used car. A lower loan amount means a lesser burden on the buyer.
The tenure of a new car loan can range from one to eight years, while for a used car loan, the tenure is between 1 to 5 years. While a longer tenure means smaller monthly instalments, the final cost of the loan is higher for a longer-duration loan.
Loan interest rate:
The interest rate on a new car loan can go as high as 15.5%. On the other hand, leading lenders like Muthoot Capital offer a used car loan interest rate starting at only 8.50% per annum.
Customers can use a free used car loan calculator on the website of leading lending platforms to know the applicable interest rate on a car of their choice. He can try different combinations of loan amount and loan tenure to reach an interest rate that matches his budget.
Flexible repayment options:
A customised car loan helps the customer decide on the repayment terms. Lenders like Muthoot Capital offer different schemes with variable interest rates and repayment tenures to match the needs of customers. Not only this, but these lenders also offer quick loan approvals and hassle-free loans even to people with no income base.
Documentation and disbursal process:
The documents required and the disbursal process can be longer for a new car than for an old one. Processes like insurance of the new car take comparatively more time. Muthoot Capital disburses a used car loan within 20 minutes, provided the documents are ready. The documentation process for used car loans is easy and simple.
The down payment on used cars is comparatively higher than on new cars since lenders consider used cars riskier than new ones. However, lenders like Muthoot Capital offer up to 90% of the LTV of used cars for certain models. Buyers can buy a well-maintained used car from a reliable seller like a branded used car seller or a known friend or relative to ensure quality. It will help him get a higher LTV on the car.
The cost of insurance and renewal premium of a used car is lesser than a new car since its cost is lesser.
People who do not want to splurge a lot can opt for a used car with a good maintenance history. Usually, lenders extend transfer support to the buyer on used car loans. Use an online used car loan calculator to calculate the EMI on a used car loan and buy a luxury car at affordable rates with a used car loan.