Find out the key differences between a new car loan and a used car loan. Also know the pros and cons of new and second-hand car loans.
Purchasing a car is not just about getting the finance in place or obtaining the loan. There are various choices of loans that an individual needs to scan and choose from while buying a car for himself. Simply shortlisting a model and brand is not enough. Among the first questions, you need to confront if you would like to purchase a new vehicle or a used one? Both, new and used cars can make a massive difference to the finances. Furthermore, if you are planning to go with car financing, you have to learn whether you are eligible for financing or not.
Normally, there are 3 kinds of car loans:
- New Car Loans
- Used Car Loans
- Loans Against Cars
One opts for a brand-new car loan when buying a brand-new car. The new car loans can be found at interest rates that range from 8 percent to 15 percent per annum.
Used car loans are often provided by lenders and banks as soon as an individual opts to get a second-hand car. The interest rate for those loans is somewhat higher in comparison to brand new car loans. But note that the loans from used cars are usually offered for cars which aren’t older than 10 years.
A loan against a car, as its name implies, can be chosen by maintaining a classic car as collateral with the financial institution.
What are the Pros and Cons of taking a New Car Loan?
Regarding taking a car loan, banks would rather provide loans for new automobiles in a more hassle-free way since the risk is reduced. Also, the amount of the loan disbursed is more. It is so because new cars have a guarantee from the manufacturer, therefore, it reduces the risk for the lenders.
In the event of a new car, a borrower may avail financing for approximately 90% of the price of the car. A variety of banks also provide new car loans around the ‘on-road’ price which lowers the load of the debtor. At the same time, interest can also be reduced.
The tenure of such loans generally ranges between 5-7 years, thus profiting the borrowers and allowing them to handle their EMIs more comfortably. The interest rate of new automobile loans ranges from 8% onwards.
After taking a loan to fund a new car, there are few things to consider. For example, because there is an insurance policy premium connected to the brand-new vehicle, notice that your yearly cash outflow will grow. The entire outflow will increase on account of the insurance premium, even if the rate of interest is reduced.
What are the Pros and Cons of a Used Car Loan?
Above all, the price of a used car will probably be reduced compared to that of a brand-new vehicle. Therefore, the price of insurance for the debtor will also decrease. In case of an old auto loan, not only the borrowing amount is likely to reduce, but also the repayment provisions can be flexible. Borrowers usually choose a tenure of 3-5 years to pay the payment of their loan.
A second-hand car loan amount is generally confined to a max of 80 % of the value of the automobile. The remaining portion of the cash will have to be arranged by the buyer. The rate of interest is also higher in case of used car loans, as compared to the new automobile loans. A used car interest rate may range approximately between 10 percent to 17 percent per annum, thus, increasing the EMI burden.
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