Pre-Owned Car Loan

Difference Between New vs Pre-owned Car Loan

April 29, 2022 • 1685 views

There are many options for consumers when it comes to buying a new car. It is not just about choosing the model and brand of the car, but the question is whether you want to buy a new car or a used car. This is a very important decision and will make a big difference to your finances. You need to determine the purpose of the purchase and consider whether you are eligible for the loan. Loans are available for a new car and a used car at different terms and interest rates. A look at the difference between the two loans will help you choose the right one for your needs.

A new car loan will enable you to buy a new car whereas a used car loan can be used to buy a used car. Many top lenders in the country offer car loans for buying new cars as well as used cars. Both these types of loans come with their benefits which we will discuss in the below sections.

New Car Loan - Features

As stated earlier, a new car loan can be availed if you are looking to buy a new car. Interest rates on new car loans range between 7% p.a. and 15.50% p.a. The interest rate can be fixed or floating. As the name suggests, if you choose a fixed interest rate, your Equated Monthly Installments (EMIs) will be fixed during your loan tenure. On the other hand, if you choose a floating interest rate, your interest rate may fluctuate with changes in interest rate trends in the economy.

Some of the features of the new car loan are listed below:

-Makes it possible to buy a new car even when you don't have the money now.
-Some lenders offer new car loans up to 90% to 100% of the on-road price of the car, which means you don't have to make any down payment.
-If you have a good credit score (above 750), lenders may offer you a lower interest rate on a car loan.
-You do not need to provide any collateral for availing of a car loan.
-You can buy a car of your choice by availing of a new car loan.
-The process of getting a new car loan is simple, hassle-free, and gets approved quickly. The paperwork required is also minimal.
-Most of the car loans taken for buying a new car have a loan foreclosure/prepayment option.

Used Car Loan - Features

A used car loan or a pre-owned car loan is ideal for you if you don't mind owning a used car, provided it is in a good condition. The used car market in India is developing to an extent where dealers ensure that the car they sell is verified and in good condition, encouraging more and more people to buy used cars. Also, many of the top banks and financial institutions in the country are offering Used Car Loans at attractive interest rates. Before taking a loan to buy a used car, you should ensure that the vehicle is not more than 5 years old as most lenders may not lend if the car is older than that. The interest rate on used car loans ranges between 9.80% p.a. and 16.80% per annum while the repayment period ranges between 1 year to 5 years. Let us look at some other features of a used car loan below:

-You can buy a luxury car by availing of a used car loan as used cars are relatively cheaper as compared to new cars.
-Financing can be availed up to 80% of the car's valuation.
-The loan application process is quick and there is no hassle.
-The maximum loan tenure offered on a used car loan is 5 years.
-Some lenders offer full transfer assistance when you take a used car loan from them.

Understanding the Pros and Cons of a new car loan

  • Pros:

    When it comes to taking a car loan, banks prefer to give loans for new cars as the risk is comparatively less, while the disbursed loan amount is also high. This is because new cars come with a warranty from the manufacturer, therefore, it reduces some of the work for the lenders.
    In the case of a new car, the borrower can get a loan of around 90 per cent of the cost of the car. Various banks also offer new car loans at 'on-road' cost which reduces the burden on the borrower. At the same time, the interest rate is also less.
    The tenure of these loans is usually between 5 and 7 years, thereby benefiting the borrowers who can manage their EMIs comfortably. The new car loan interest rate is 7per cent onwards.
  • Cons:

    There are a few things to keep in mind while taking a loan to finance a new car. For example, since the new car has an insurance premium attached to it, note that your annual cash outflow will increase. The total outflow will increase due to the insurance premium, even if the interest rate is lower.

    Understanding the pros and cons of a used car loan

  • Pros:

    Most importantly, the old car will cost less than the new car. Hence, the cost of insurance for the borrower will also come down. With an old car loan, not only would the borrowed amount be less, but the repayment terms would also be flexible. Borrowers usually get a tenure of 4-5 years to repay the loan.
  • Cons:

    In the case of a used car, the loan amount is usually fixed or limited to a maximum of 80 per cent of the value of the car. The borrower will have to make his down payment for the rest of the money. With an old car loan, the interest rate is also higher compared to a new car loan, so the EMI burden will also be high.

    New car vs used card difference 

  • Loan amount

    As a general trend, the loan amount for a new car loan is higher than for a used car loan. The same happens because of the low loan-to-value of the used car.
  • Rate of interest

    Then, the low loan-to-value factor comes into play. Therefore, since the bank assumes a higher associated risk with secondhand vehicles, they charge higher interest rates.
  • Repayment Terms and EMI

    The lower interest rate of a new car loan translates into lower monthly instalments. On the other hand, since you require less money for a used car, you need to pay lower EMIs.
  • Loan term

    Most of the banks offer different loan tenures for new and used car loans. Therefore, it is essential to compare several options before settling for one.
  • Documentation and disbursement process

    The documentation process for a new car can be longer than for an older car. This may be due to additional documents such as new car insurance.

    Which is better for you?

    You should choose the loan that gives you the most value and best suits your needs. It's all limited by your needs and the purpose of the vehicle. If you are planning to buy a used car, you can enjoy exclusive benefits with Poonawalla Fincorp.

    Our used car loans, have flexible terms and offer quick disbursement of the loan amount so that you can enjoy your vehicle ownership in no time.


We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Pre-Owned Car Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply

poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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