Undoubtedly, we all would want to own a brand new car, but certain factors like the high price of new vehicles compel us to put this wish on hold. However, the interesting fact lies in the recent statistics that reveal sales of used cars in India outnumber that of new cars. Also, there are quite a few advantages attached to pre-owned cars such as low price, and low rate of depreciation. The organised and authorised segment of current used cars market ensures that all the cars on display are fully serviced and quality tested. The dealers also give a warranty period in terms of kilometers or years, along with assisted finance. More so, most of the present day’s pre-owned cars are sparsely used, thereby, giving the opportunity to the buyer to own an almost new car.

Aside, the merits and demerits of new and used cars, one common thread that runs across is finance. Buying a car is an expensive affair, and the price tag runs into lakhs, regardless of whether a car is new or pre-owned, making buyers avail for a car loan. Though the basic aspects of new car loan and used car loan remain same, yet there are few variations that one must be aware of.

1) The interest rate
Interest rate is a common factor for all types of loans, and so is true in the case of car loan too. However, a borrower must know that the interest rate of a used car loan is higher than a new car loan, by approximately 5-7%. This is so because the loan amount for a used car is lesser than a new car. In addition to this, lenders view giving loan for a new car is less risky as compared to loan for a used car.

2) The amount of loan
Certainly, the cost of new cars is higher than used cars, meaning the loan amount that a borrower seeks will also be higher. In such a situation, most of the banks and non-banking finance companies offer loan amount of up to 90% of the total cost of the car. There are also lenders who offer 100% finance for a new car loan subjected to certain terms and conditions. On the other hand, the loan amount for used cars is comparatively lower i.e. most lenders tend to offer 70-80% of the cost of the car. This means that you have to be ready to shell out higher down payment for availing a used car loan than a new car loan.

3) Loan duration
The commonly available loan repayment tenure for new cars is five years, whereas some lenders also provide tenure of up to seven years. But, in the case of used cars, most lenders prefer a three-year loan repayment tenure, with very few lenders offering a five-year tenure. The loan tenure for used cars also depends on the condition of the car and its age. Generally, lenders have the condition that the age of the car at the time of loan maturity should be within ten years.

4) EMI
As the loan repayment tenure is longer for new cars, the borrower has to pay less EMI. But, in the case of used car loans, the borrower needs to pay higher EMI due to shorter loan repayment tenure.

Thus, even though there is the availability of loan for new cars and used cars, it is important that you are abreast of the differences between the two. This will not only help you take an informed decision but, will also put you in a more advantageous situation while making your choice of a new car or a used car.