New Car vs Used Car Loans: Which is a Better Option?

Whether a new or used car, buying a car is an emotional as well as an important decision for us all. The new car sale stands high as ever, with 2.56 crore cars sold in FY2025, but used car sales are not far behind, as they are about to cross 60 lakh in 2025. You can get both a new-car loan and a used-car loan, but they offer different benefits.

While there is demand for both, choosing between a new or used car loan is important, as it affects everything from budget to loan eligibility. In this blog, we will understand a brief comparison between new car vs used car loans to help you make a better choice.

Understanding New Car Loans

Whenever you buy a brand-new car, a new-car loan helps finance most of the cost. In fact, around 80% of the cars bought in India are funded by banks or Non-Banking Financial Companies (NBFCs). You can get either up to 80% or 100% financing of the car’s on-road price.

Advantages of Buying a New Car through a Loan

• Easy access to cars that might be out of your immediate budget.

• Lower interest rates due to reduced lender risk.

• Higher loan-to-value (LTV ) ratio of up to 90%-100%.

• Easy process, quick disbursal, and simple documentation.

• A longer repayment tenure of up to 7 years, offering lower EMIs.

• Fewer risks related to the car's condition, since the manufacturer's warranty covers the vehicle.

Disadvantages of Buying a New Car Using a Loan

• Higher depreciation because new cars lose their 30-40% value in the initial three years.

• Even with low interest rates, you will pay more than the car's actual price.

• A lender has the legal right to repossess the car if you default on the equated monthly instalments (EMIs).

• Higher costs, mainly due to initial expenses such as auto insurance and registration fees.

Understanding Used Car Loans

Used car loans primarily finance pre-owned vehicles. The used car market is attracting many individuals because quality second-hand cars are readily available from certified dealers. These car dealers conduct thorough research and provide a comprehensive vehicle history report, which helps determine whether to purchase the vehicle.

Advantages of Buying a Used Car through a Loan

• Buying a second-hand car is generally cheaper.

• Helps buyers own premium models with the latest safety features at significantly lower cost than new.

• You can get financing up to 80% of the car’s market value.

• Second-hand cars depreciate much more slowly than new cars.

• Older cars attract lower insurance premiums and road taxes.

Disadvantages of buying a used car using a loan

• High interest rate usually around 11% to 17%.

• Shorter tenure is mainly limited to 6 years.

• Extra cost of repairs & maintenance.

• May require additional documents, such as vehicle inspection, ownership verification, and more.

Key Differences: New Car vs Used Car Loans

Here are the key differences between new car vs used car loans you must consider before choosing one:

Understanding Cost and Depreciation Impact

Depreciation plays a crucial role in car ownership as it helps determine a car's value. When you buy a new car, its value begins to decline the minute it leaves the showroom due to maintenance and depreciation. New cars usually depreciate significantly in the first few years due to the New Car Effect.

Whenever a vehicle is registered in your name and driven out of the showroom, the ‘new vehicle' immediately becomes a ‘used vehicle', which affects the resale value, regardless of the kilometres driven. On the other hand, second-hand cars depreciate slightly less.

A new car valued at approximately ₹10 lakh may lose its value by ₹1.5-2 lakh in the first year. Whereas a used car costing around ₹4 Lakh could retain a resale value of about ₹2-2.5 lakh after additional use.

New Car vs Pre-owned Car Loan: Which is the better option?

Buying a first car is always exciting, even if it's a second-hand car. This is why the choice of a loan will mainly depend on your personal preferences and on the pros and cons of both car loan options.

Choose a New Car Loan if:

• You desire the new model with a manufacturer's warranty and high safety features.

• You can afford higher EMIs even with low interest rates.

• You intend to retain the car for 5+ years.

• You want the latest features in a new vehicle.

• You prefer lower maintenance in the early years.

Choose a Second-hand Car Loan if:

• You want a low-cost car with a smaller loan and faster repayment.

• You desire to upgrade to a high-end model at a reduced price.

• You like to be flexible and change cars every few years.

• You prefer lower monthly instalments despite slightly higher interest.

• You are willing to thoroughly inspect and verify ownership.

To Conclude

The choice between a new car vs used car will mainly depend on your budget, preferences, and financial goals. New car loans offer lower interest rates and longer tenures, but come with higher initial costs and higher depreciation. At the same time, used car loans offer affordability and flexibility.

If you want to bring a used car you love but are running short on funds, apply for a Pre-owned Car Loan with Poonawalla Fincorp. You can get up to ₹75 lakh to buy your dream car. You also enjoy the flexibility of repaying the loan in up to 72 months.

FAQs

​What is the interest rate for used car loans in India?

Poonawalla Fincorp offers Pre-owned Car Loans with interest rates starting from just 11% p.a. and a repayment tenure of 72 months.

Can I get full financing for a used car loan? 

At Poonawalla Fincorp, we offer a Pre-Owned Car Loan with a high loan-to-value ratio to ensure that you don't make a substantial down payment out of your pocket.

What documents are required for a second-hand car loan?

Here are the key documents that you require for a car loan in India:

• Identity Proof

• Address proof

• Income proof

• Vehicle documents 

How long is the loan tenure for used cars?

Generally, used car loans have a tenure of up to 6 years, while new car loans can extend to 7 years.​

 Is the loan approval process slower for used cars?

Not necessarily, but the process can be slower due to the verification of car ownership and condition.​

Should you purchase a new or used vehicle on loan?

Price, priorities, and preferences are the three factors that mainly decide whether you should buy a new or used car on loan.

What is the average interest rate of new and used car loans in India?

Here is the average interest rate for both new and used car loans in India:

• New automobile loans: 8-12% per annum

• Car loans for used cars: 11-16% per annum

What is the maximum amount of loan I can obtain to purchase a car?

The highest percentage most lenders will give on new cars is 90%-100% of the on-road price, and 60%-80% of the car's valuation for used cars.

What is the maximum period of repayment of car loans?

Here is the average tenure of new and used car loans in India:

• New car loans: Up to 7-8 years

• Used car loans: Usually 3-5 years

Will borrowing a car loan impact my credit rating?

Yes. Consistent EMI payments will boost your credit score, whereas default or late fees will adversely affect your credit score.