When it comes to buying their first car, most people are confused about a few things. Many believe that it makes more sense to purchase a used car as opposed to a new one. After all, a used car costs much lower than a brand new one. But what you need to remember is that while a used car may cost almost half the price of a new one (depending upon the age of the car), you may have to spend quite a lot of money on servicing and maintaining it. You may also end up paying higher insurance premiums. These are just some key aspects of new vs used cars. Now, let’s take a look at the key aspects affecting new vs used car loans.
The amount of the loan: Individuals buying a new car do not have to worry about the unknown history of the car. New cars also come with manufacturer warranties and guarantees for almost up-to 4 years or the number of miles clocked. Banks and NBFCs take this factor into consideration while providing the car loan. The disbursed amount of the loan for a new car is generally higher as opposed to an old car, which costs less. In case of used cars, the loan-to-value ratio is much lower. Also, you may get up to 100% finance for the on-road price of a new car, whereas for used cars, you may get only about 70%-80% finance of the car’s value.
The rate of interest charged against the loan: It does not matter whether the car is old or new, if you purchase it on a loan; you have to pay a certain interest rate. It may surprise you to know that the rate of interest charged on a used car loan is higher than the interest charged on a new car, that too by a whopping 5%-7%. One of the main reasons for the high rates of interest is that the loan amount is much smaller in comparison to new cars. Also, lenders find it less risky to provide loans on new cars, because the resale value and demand for new cars is higher.
The duration or tenure of the loan: If you buy a new car, you are usually provided with longer tenures of 5 to 7 years. However, when it comes to used cars, most lenders provide repayment tenure of 3, or at best 5 years. The loan tenure of used cars is determined basis the age of the car as well as the loan amount. Lenders are usually comfortable offering car loans for used cars which are aged within eight years. For instance, if a used car is four years old, then the car loan tenure is typically under 4 years, however if the age of the car is more than 5 years, the tenure of the loan is usually within 3 years.
The amount of the loan: Individuals buying a new car do not have to worry about the unknown history of the car. New cars also come with manufacturer warranties and guarantees for almost up-to 4 years or the number of miles clocked. Banks and NBFCs take this factor into consideration while providing the car loan. The disbursed amount of the loan for a new car is generally higher as opposed to an old car, which costs less. In case of used cars, the loan-to-value ratio is much lower. Also, you may get up to 100% finance for the on-road price of a new car, whereas for used cars, you may get only about 70%-80% finance of the car’s value.
The rate of interest charged against the loan: It does not matter whether the car is old or new, if you purchase it on a loan; you have to pay a certain interest rate. It may surprise you to know that the rate of interest charged on a used car loan is higher than the interest charged on a new car, that too by a whopping 5%-7%. One of the main reasons for the high rates of interest is that the loan amount is much smaller in comparison to new cars. Also, lenders find it less risky to provide loans on new cars, because the resale value and demand for new cars is higher.
The duration or tenure of the loan: If you buy a new car, you are usually provided with longer tenures of 5 to 7 years. However, when it comes to used cars, most lenders provide repayment tenure of 3, or at best 5 years. The loan tenure of used cars is determined basis the age of the car as well as the loan amount. Lenders are usually comfortable offering car loans for used cars which are aged within eight years. For instance, if a used car is four years old, then the car loan tenure is typically under 4 years, however if the age of the car is more than 5 years, the tenure of the loan is usually within 3 years.
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