Used Car Loan vs. New Car Loan

Used Car Loan vs. New Car Loan

Owning a car was considered as a luxury until a few years ago. However, today it is a necessity and buying one is no longer difficult as financial providers offer you with various options in car finance. Most banks and Non-Banking Financial Companies (NBFCs) offer vehicle loans to make it easier for you to own your dream car.

When you decide to buy a car, you may face the dilemma of buying a new or pre-owned vehicle. Some people, especially first-time buyers consider investing in a new car as not a good decision. On the other hand, a new vehicle is able to offer better performance if you are willing to spend a little more.

Although the price of a used car is lesser than a new vehicle, the maintenance costs for the former may be higher due to the wear-and-tear. On the other hand, as the price of a new car is more, the motor insurance premium will be more. To have a more thorough understanding you may use a car loan EMI calculator.

Your decision must depend on your financial stability because availing of a loan against vehicle is very easy in today’s world. It is imprudent to avail of a higher loan to buy a new car and then later face liquidity crisis while repaying the borrowed amount.

Here are some points to remember while choosing between a new versus a used car loan:

  • Borrowed amount

When you buy a new car, the lenders do not have any doubts about the performance and quality of the vehicle. In comparison, lenders consider the condition of the pre-owned vehicle to determine the loan against car amount. Generally, the loan-to-value (LTV) for a new car is higher than a pre-owned vehicle.

  • Loan duration

Another consideration while comparing new versus used car loans is the duration. It is likely that you may want to repay the borrowed amount over a longer period of time. This reduces the Equated Monthly Installment (EMI) and ensures that you have no financial difficulty to service the same in a timely manner. Lenders usually offer longer repayment tenures for new cars when compared to the duration for pre-owned vehicles.

  • Rate of interest

Because the new vehicles have lesser risks, financial institutions offer lower car loan interest rates. Lenders may levy a higher rate of interest for a pre-owned car, which may be a disadvantage. When the interest rate is higher, your total repayment increases effectively, thereby increasing the overall cost of the vehicle. However, several institutions now offer competitive interest rates even on used cars to make it easier for borrowers to repay the money in a timely manner.

  • Flexibility in the EMI schedule

A large number of financial institutions offer customized loan options to ensure that more people are able to meet the car loan eligibility criteria. Unlike in the past, lenders offer flexible EMI schedules even for pre-owned vehicle loans, thereby providing you with freedom and no financial distress to repay the money on time.

When you apply for a loan, you need to complete the necessary paperwork to ensure that your application is processed quickly, that too without any difficulties. Therefore, having the loan against vehicle documents ready at the time of application ensures that the procedure is completed in a quick and hassle-free manner. You may apply for the loan online and submit the documents through the lender’s website to receive instant approval.