Used car loan vs new car loan
If you are planning to take a car loan to buy a car, there is a slight chance that you are confused about whether you should take a new car loan or used car loan. A new car loan will enable you to buy a brand-new car while a used car loan can be used to buy a pre-owned car.
Types of Car Loans:
- New Car Loan: -New car loans can be used to purchase a brand-new car straight out of the showroom. Depending on the bank, the interest rates will vary. Up to 100% of the on-road price of the car may be provided as a loan.
- Used Car Loan: -Lenders offer used car loansup to 80-85% of the price of the car at attractive interest rates for a loan tenure up to 5 years. However, certain lenders will offer loans for cars that have been purchased within the last 5 years.
Key Components of a Car Loan:
- Monthly Instalments: -The EMI that must be paid every month. EMI consists of interest and principal amount
- Down Payments: -The upfront amount paid when you purchase the car.
- Loan Term: -The tenure or duration of the loan. EMIs must be paid for the selected tenure
- Rate of Interest:-The interest rate charged by the lender on the Vehicle loan that has been availed
- Principal Amount: -The amount that is borrowed to buy the car. The principal amount does not include any fees or interest levied by the bank
New Car Loan – Features
- Makes buying a new car possible even if you do not have funds at the moment
- Some lenders offer new car loans for up to 100% of the car's on-road price which means you do not have to make any down payment.
- If you have a good credit score (above 750), lenders may offer you lower interest rate on car loans.
- You do not have to provide any collateral to take a car loan.
- You can buy a car of your choice by availing new car loans.
- The processing of availing a new car loan is simple, hassle-free, and is quickly approved. The paperwork required is also minimal.
- Most car loans availed for buying a new car offers the option of Loan foreclosure/ Prepayment
Used Car Loan – Features
- You can afford a luxury car by availing a used car loan since used cars are relatively cheaper than the new ones.
- Financing of up to 90% of the car's valuation can be availed.
- The loan application process is speedy and involves no hassle.
- The maximum loan tenure offered on used car loans is 5 years.
- Some lenders offer complete transfer support when you take a used car loan from them
How to Apply for Car Loan Online?
- Visit the Lender’s Website - Go to the lender’s website or download the app and go to the Car Loan section.
- Check your Eligibility & EMI- Check your loan eligibility and EMI obligations using online car loan eligibility and EMI calculators.
- Click Apply - Once you have checked the loan amount you are eligible for, click on ‘Apply.
- Submit the Required Documents -Submit all the mandatory documents. These may vary from lender to lender.
- Link Your Bank Account - Link your bank account details so that the loan amount gets credited to your account instantly.
- Loan Approval and Disbursal - The lender will run the final eligibility, credit score check considering they are satisfied with the documents that you have submitted. The timeline between loan application and disbursal may vary from lender to lender. Once your loan is approved, you will get the amount credited to your car loan account. Note that the final amount and interest rate are decided by the lender based on your credit history, repayment capacity, etc. If have an excellent track record, you might get approved for 100% financing for your car.
How to Apply for Car Loan OFFLINE?
You can visit the bank branch and apply for a car loan. The relevant documents must be submitted. Once the verification process is completed, the loan will be provided.
Documents Required for Car Loan:
To prove your eligibility, you'll need to provide certain documents. Though this too is specific to different lenders, the common document will be:
| REQUIREMENTS | INDIVIDUALS |
| Identity proof (any of the following) | Aadhar, passport, Driving license, Voters ID card, pan card |
| Address proof (any of the following) | Aadhar, passport, Driving license, ration card, Utility bills |
| Proof of income | Form 16 , Salary slips, if you are salaried, Latest income tax returns, Bank statements going back 6 months |
Comparison of Interest Rates on New Car Loan and Used Car Loan:
| Attribute | New Car Loan | Used Car Loan |
|---|---|---|
| Interest Rates | Lower (around 9.0% upwards) | Higher (around 11.0% upwards) |
| Loan Terms | Longer (up to 84 months) | Shorter (up to 60 months) |
| Eligibility Criteria | Higher credit score needed | More lenient, accepts lower scores |
| Benefits | Lower interest rates, warranty, latest features | Lower cost, slower depreciation |
Used car vs new car loans: Which is the better option for you?
Both used car and new car loans have their own merits and drawbacks, and the right choice depends on your financial situation and needs. New car loans are ideal for those seeking the latest features and lower interest rates, while used car loans work well for budget-conscious buyers who prioritize lower upfront costs. Whichever option you choose, ensure you’re comfortable with the financial commitment and that the car aligns with your lifestyle and goals
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