Used Car Loan Vs New Car Loan in 2024

Apr 24th 2024
New Car Loan vs Used Car Loan

Cars have become a necessity among households. Whether it is to commute to the office, visit a nearby grocery store or mall, go on a family vacation, or take your wife or girlfriend on a date, a car makes things easy for you. With so many car manufacturers currently operating in India, it is not at all difficult to choose the best car for your needs. 

Be it an SUV, hatchback, sedan, MPV, or any other vehicle, you can easily get the one today. However, one big confusion people face is whether they should buy a new vehicle or a used one. And, in most cases, people apply for a car loan to fund this purpose. So, in this post, you will get to know everything about new car loans and used car loans and which one is better.

Should You Buy a New Car or a Used Car?

Choosing between a new car and a used one is a personal decision that depends on your preferences and financial circumstances. While you may have the means to purchase a new car, opting for a comparable model in the used car market could present a more affordable option. The money saved from buying a used car could be allocated towards customizing your vehicle to suit your preferences, building up savings or covering future maintenance expenses. 

When choosing between a used car and a new car, it is important to factor in the condition and age of the used car. Thanks to the frequency at which people change cars nowadays, it is easier to find good cars. It is possible to find cars that are less than 2 years old with only a few thousand kilometres on the odometer for a significantly lower price than a new car. 

Ultimately, the choice should align with your needs and preferences, whether that means opting for a new or used vehicle. As long as the car meets your criteria for safety, reliability and functionality, either option can be a suitable choice. 

Difference Between A New Car Loan and Used Car Loan

Although they may appear to be comparable at first glance, new and used automobile loans differ in several ways that might have an impact on the customer's choice to purchase.

Here is your reference to interest rates and other features for both new and used automobile loans.

Feature New Car Loan Used Car Loan
Nature of Loan Finance for purchasing a brand-new car Finance for purchasing a pre-owned car
Loan Amount Up to 80-85% of ex-showroom price Up to 100% of the car's purchase price (depending on the lender)
Interest Rate Typically higher (7.50% - 15.5%) Typically lower (may start from 7.5%)
Loan Tenure 1 to 8 years 1 to 5 years
Down Payment Typically lower Typically higher
Documentation More complex and time-consuming Simpler and faster process
Insurance Higher premium due to new car value Lower premium due to used car value



New Car vs Used Car Loans: Rates Offered by Top Banks

Listed below are some top Indian banks where you can apply for a car loan (new or used) and the interest rate they charge on the loan amount: 

Bank Name

New Car Loan Interest Rate Per Annum

Used Car Loan Interest Rate Per Annum

United Bank of India

8.80% to 8.85%


State Bank of India

9.00% to 12.25%

11.00% to 12.00%

Axis Bank

9.05% to 11.30%

14.80% to 16.80%


9.30% to 12.85%


Hdfc Bank

9.50% to 10.25%

13.75% to 16%



Advantages and Disadvantages of New Car Loans in 2024

When considering the purchase of a new car on loan, it is crucial to take into account both the advantages and disadvantages - 


  • Loans can make buying a car more affordable by allowing you to divide the total cost over a while. This way, rather than paying for the car in full upfront, you can make more manageable monthly payments. This helps to ease the financial burden and allows you to budget better for other expenses
  • Using a loan gives you options to choose from a wider range of vehicles, allowing you to consider cars that have more features or are higher quality than what you could purchase with cash
  • Making on-time payments on your car loan is a great way to establish a positive credit history. By doing so, you can improve your credit score, making it easier to qualify for other types of loans in the future. This financial responsibility demonstrates to lenders that you are reliable and able to manage debt effectively
  • Lenders provide flexible repayment options, allowing you to select a loan term and monthly payment that suits your financial situation
  • Buying a car with a loan grants you ownership rights once the loan is fully repaid, providing the freedom to sell, trade or modify the vehicle according to your preferences. This sense of ownership differs from leasing, where you must return the car at the end of the lease period


  • The overall cost of the car increases as a result of the interest accumulated on the loan
  • Taking on a car loan introduces debt into your financial situation, which can hinder your ability to save for other objectives or qualify for additional loans
  • Cars lose value as time passes, which can result in negative equity if the loan amount exceeds the car’s worth. Negative equity makes selling the car challenging
  • If you find yourself needing to sell your car before paying off the loan, you might end up in a situation called being upside down on the loan. This means that you would be held accountable for the remaining balance on the loan if the car sells for less than what you owe. It is similar to negative equity, which can be financially burdensome
  • Car loans can limit your options, making it hard to switch to a different vehicle or sell the car before the loan is paid off. This lack of flexibility can be frustrating for those who want to upgrade to a newer model or change their vehicle for any reason.

Advantages and Disadvantages of Old Car Loans in 2024

In this section, we will discuss some of the important advantages and disadvantages of old car loans - 


  • Most used car dealers offer the option of a low down payment, typically around 10% to 20% of the car’s price, making it an affordable choice. In some cases, you may even find 0% down payment options, but it is important to consider that this could result in higher overall lifetime costs
  • Regardless of your credit rating, it is possible to secure a reasonable APR for a used car. Lenders may offer fair deals on car loan financing even to individuals with bad credit, as they can repossess the car if payments are not made, reducing their risk
  • Auto loans can be beneficial for improving your credit rating, especially if you are aiming to recover from a negative credit history
  • Rather than spending all your savings on a car purchase, it is wise to consider the future consequences. Lending your car instead allows you to maintain your savings and have a safety net for unforeseen circumstances
  • Used car buyers can benefit from the quick depreciation of new cars, with a 20% decrease in value within the first year and 40% after 3 years. This means lower average prices for pre-owned vehicles, making it easier to pay in cash or make a sizeable down payment
  • Additionally, you may be able to find newer and more specialized models that would typically be outside your budget
  • Due to the lower prices of used cars, the average loan amount for them is usually lower than for new cars. This can result in more affordable monthly payments and reduced total interest charges, depending on the loan terms
  • The market is filled with a variety of high-quality vehicle options due to the constant advancements in quality and reliability. This has allowed for the availability of numerous great models that customers can choose from
  • Used car loans typically have shorter terms than loans for new cars. This means that borrowers can pay off their vehicle loan sooner and with less interest. It is a great option for those looking for a faster repayment period and lower overall cost


  • Older cars tend to be less reliable due to the likelihood of needing more repairs and maintenance, especially without warranty coverage. The way the previous owners drove the car also impacts its reliability, making it important to have access to vehicle history reports that detail accidents, services and title status
  • Financing a car typically results in higher overall costs compared to purchasing it outright because of the interest on the loan. Therefore, buying a car with cash will generally be more cost effective than financing it
  • When financing a car, it is difficult to have much negotiation leverage. Although small deals can be made, you are generally limited to the offers given by the dealer. However, dealerships find cash payments more appealing as they result in immediate profit and less paperwork. This may lead them to negotiate a better price to sell the car quickly
  • When financing a car, ownership is only transferred once the full payment is made. Until then, the lender holds the title and has the right to repossess the vehicle if payments are not made

Factors to Consider Before Choosing Between a New or an Old Car Loan

When deciding between a new car loan and a used car loan, it is important to consider your budget, the vehicle’s depreciation and your preferences for a new or pre-owned car. Your financial stability and long-term goals will also play a significant role in this decision-making process. 


  • New cars are more expensive than used cars, but a higher down payment can help lower the loan amount for both choices
  • New cars tend to lose their value quickly in the first few years after purchase, while used cars generally depreciate at a slower rate
  • Generally, new car loans offer lower interest rates than used car loans
  • When calculating the total cost of ownership, it is important to take into account more than just the loan amount. Other factors such as fuel costs, insurance fees and maintenance expenses should also be considered. By including these additional expenses, you can get a more accurate picture of the overall cost of owning a vehicle

Car Features and Needs:

  • New cars are equipped with the latest technology and features that might be important to you
  • New cars offer a wide range of options, allowing you to personalize and customize various features and trims to your liking. With the latest models, you have the flexibility to choose from a greater selection of styles and designs, tailoring the car to meet your specific preferences and needs
  • New cars typically experience fewer repair needs in their first few years, while a well-maintained used car can also offer dependable performance. It is important to consider the individual history and maintenance of a used car when assessing its reliability. Both new and well-kept used cars can provide reliable transportation for their owners

Your Financial Situation:

  • It is important to consider your budget and monthly expenses before taking on a new car loan. Make sure the monthly payments are comfortably affordable and won’t strain your finances. Keeping a realistic budget in mind will help ensure that you can manage the loan payments without financial stress
  • Having a good credit score has significant advantages when it comes to getting a loan. Lenders are more likely to offer you a lower interest rate if you have a good credit score. This means you will end up paying less in interest over the life of the loan. So, maintaining a good credit score is crucial for saving money on interest
  • A shorter loan term results in increased monthly payments but decreases the amount of interest paid in total


Q. How Much Funding Am I Eligible For?

- Up to 90% of the value of the automobile may be borrowed. The smallest loan is for Rs. 75,000.

Q. What Possibilities Are There For Tenure?

- Your decision is yours. You have a range of repayment options, all tailored to your needs, ranging from 12 to 84 months.

Q. Is A Guarantor Required?

- Typically, no. However, if your income or age does not fit our credit requirements, you could need a guarantor to provide security for your loan.

Q. Is It Possible For Me To Prepay The Complete Loan Amount?

- Yes. After receiving the loan for six months, it may be prepaid at any moment.

The Conclusion

When it comes to choosing between a new car loan and a used car loan, it is recommended to select the one that meets your needs for financial products and offers you the best value. Everything comes down to your requirements and the function of the vehicle. With Investkraft, you may take advantage of special incentives whether you want to purchase a new or used car.



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