Buying a car on loan is a convenient method as you need not pay the entire amount at one go. Car purchase, whether it is a new or 2nd hand car, usually involves a certain amount of down payment and you can take a loan for paying the balance. Applying for a loan becomes essential unless you are selling off an existing car to meet the expenses or using up some part of your savings. 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 a 2nd hand car financing. Read on to know more about them.
The two types of loans are dissimilar in the following ways:
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 can get new car loans up to 100% of the ex-showroom price. For a used car the maximum amount is usually 80% of the price. Used cars come at a much lower price than a brand-new one. The associated costs also go down for a used car.
Eligibility for getting pre owned car finance
You can visit the online car buying sites and fill up certain details to apply for a loan. These include information about your income, name, address, car model and age, etc, in a secured format. If you are eligible, you will get an instant approval. Usually, you can get pre owned car finance from banks if the car is less than 10 years old. For older cars you may have to get the dealer’s help regarding in-house financing.
Interest rate on used car loan
The loan amount for a used car is less than a new car but the interest rate is higher because the lenders believe that there is more risk in providing loan for a used car compared to a new car.
The duration for repayment of loan for new cars usually range from 1 to 7 years. For old cars you the lenders provide a shorter loan tenure, about 3 to 5 years. As the loan tenure for a new car is longer than a used car, it is an advantage for buyers of new cars. The lenders determine the loan tenure based on the age of the car and the loan amount.
Loan EMI payments:
The EMI amount that you have to pay are smaller for a new car loan as it has a longer repayment period. The EMI for a used car loan is higher than a new car loan because the total loan repayment period for a used car is comparatively less.
You may have to pay a higher amount of down payment for a used car than a new car. The reason is that most lenders are willing to disburse a maximum loan amount that is only about half the price of a used car.
Documents for car loan
The documents that you have to submit would vary for a loan on new car and 2nd hand car financing. Apart from your KYC documents, income proof, bank statements, etc, you have to submit car ownership transfer certificate and other related documents for a used car loan. You can get the exact details from the lender.
Taxes and other fees
While buying a 2nd hand car on loan, you can avoid charges like the government taxes and registration fees. The previous owner may have already paid them during registration. For a new car, you have to bear these expenses on your own.
Car insurance is compulsory and lenders may ask for insurance documents before disbursing the loans. The insurance premium of a used car is higher than a new car as it depends on maintenance cost and safety features. The maintenance cost of a used car is higher compared to a new car. You may plan to buy a car on loan due to the easy process of getting loans from both banks and other finance providers. However, there are differences between a new and a 2nd hand car financing due tovarious reasons, the most important being the price of the car. A loan on a new and a used car loan also differs, based on the purpose, interest rates and duration of the loans.