New Car Loan v/s Used Car Loan

New Car Loan v/s Used Car Loan

While purchasing a car, consumers are subjected to numerous choices. One common dilemma faced by potential car buyers is whether to opt for a new car or a preowned car. This is a very important decision and will make a huge difference to your finances. The popularity of second-hand cars has increased significantly in recent years as more and more people are considering to buy a second hand car and then opt for a new one later. Due to the advent of reliable reselling agencies for cars, improved car quality in India, and growing societal acceptance for pre-owned cars, the market for second-hand cars in India has witnessed significant growth. Various lending institutions offer loans for new cars and used cars at lucrative terms and competitive interest rates. A better understanding of these two loan products will help you choose the one that best suits for your needs.

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Let us have a look at some of the basic differences between a new car loan and used car loan:


New Car Loan

Used Car Loan

Loan Amount

In the case of a brand new car, quality and performance are not an issue. Therefore, the Loan-to-value ratio is comparatively higher. With leading financial institutions, it is possible to avail 100% financing for a new car. Since lenders check the condition of the used car before approving the loan amount, the loan-to-value (LTV) ratio is comparatively lower. However, a good credit score can help you avail 80-85% of the car’s value as the loan amount.

Loan Tenure

Borrowers can avail a new car loan for a longer tenure. Though the loan tenure is comparatively shorter in case of used car loans, some lenders may offer used car loans with a tenure of 5 years.

Interest Rate

The interest rate levied on new car loans is lower as compared to used car loans. In the case of used cars, the risk involved is higher. Therefore, lenders tend to charge a higher interest rate.

Advantages of a new car loan

  • The entire process of availing a new car loan is less troublesome. Lenders are willing to offer new car loans because the risk is lower and the total amount disbursed is much higher.
  • Many banks also provide loans on the ‘on-road’ cost which reduces the burden of financing significantly.
  • The tenure of the loan usually ranges between 5-7 years. This allows borrowers to manage their EMIs comfortably.

Disadvantages of a new car loan

  • As there is an insurance premium attached to the new car, your annual cash outflow will rise. Therefore, even if the interest rate is low, the total outflow will increase due to the insurance premium.
  • In case you fail to repay the car loan on time, the lender may most likely seize your car.

If you are looking forward to buying a second-hand car for yourself, a used car loan can be a great financing option.

Advantages of a used car loan

  • With prominent banks and NBFCs, a used car loan can be availed easily by undertaking a few registration formalities.
  • The lending institution undertakes a detailed background check for the registration documents of the pre-owned car. This ensures that there is a legitimate transfer of ownership of the vehicle in your name.

Disadvantages of a used car loan

  • Since the interest rate is a little higher in the case of used car loans, the EMI burden will also be higher for you.
  • It may be difficult to obtain 100% financing while purchasing a used. Therefore, you’ll have to pay some amount as down-payment to make the purchase.

While purchasing a car, you must consider your needs and preferences to decide which is the most suitable option for you. While availing a car loan, settle for the one that offers the most competitive car loan interest rate. This will reduce the overall cost of borrowing significantly.

Moreover, since personal loans are multipurpose loans, you can also opt for a personal loan to purchase a vehicle for yourself. Personal loans with Indiabulls Dhani can be easily availed through a hassle-free online application process. Instant approval, quick disbursal, and minimum documentation are some of the advantages of availing a personal loan with Indiabulls Dhani. Moreover, you can also calculate your monthly installments beforehand with the help of a personal loan EMI calculator. This will help you manage your expenses wisely and make timely repayment of your personal loan.

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