When you plan to buy a car, applying for a loan becomes essential unless you are selling off your existing car to meet the expenses. Car loans are available on new as all as used cars and both banks and non-banking financial companies offer these loans. Choose your preferred model and look for a suitable lender with comfortable loan terms. You have to repay the loan through Equated Monthly Instalments (EMIs) over a specified period of time. But there are several differences between a new and used car on EMI. Read on to know more about these facts.
A loan on a new and a used car differs, based on the purpose, interest rates and duration of the loans. This is primarily due to the difference in car prices. The two types of loans are dissimilar in the following ways:
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Loan amount:
Since the price of a new car is higher than the price of a used car, the banks offer higher loan amount on new cars. For example, you will get new car loans up to 100% of the ex-showroom price or on-road price. For a used car the maximum amount is usually 80% of the price.
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Interest rate:
The loan amount for a used car is less than a new car but the interest rate is higher. It is higher by approximately 5-7%. This is because the lenders believe that there is more risk in providing loan for a used car compared to a new car.
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Loan tenure:
The duration for repayment of loan for new cars range from 1 to 7 years. For old cars it is about 3 to 5 years. So, the loan tenure for a new car is longer than a used car. this is an advantage for buyers of new cars. The lenders determine this loan tenure based on the age of the car and the loan amount.
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Loan EMI payments:
The EMI payments are smaller in amount for a new car loan as it has a longer repayment period compared to a used car on EMI. The EMI for a used car loan is higher than a new car loan because the loan repayment period for a used car is comparatively less.
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Down payment:
The amount of down payment for a used car is higher than a new car. The reason is that most lenders are willing to disburse a maximum loan amount of about half the price of a used car.
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Car Insurance:
The insurance premium of a used car is higher than a new car. It depends on 2 factors – maintenance cost and safety features. The maintenance cost of a used car is higher as wear and tear is more than in a new car. The safety features available on a new car is better compared to a used car. This ensures that the risk of damage to a new car would be less than an old car. Therefore, the insurance premium for a used car also rises as insurers would have to deal with more risks.
Car loans are very convenient during purchase of your preferred car, irrespective of a brand-new or used car. Loans relieve you off the stress related to the funds required for purchase. However, there are certain differences between a new and used car on EMI. Go for a lender after going through the terms and conditions and a repayment option that would be easy for you.