There are numerous choices available to the borrowers when it comes to getting a car loan. Usually, 3 types of car loans are offered i.e. new car loans, used car loans, and loans against cars. Among these options, you can choose the one that best matches your requirements. You can opt for a new car loan when you want to purchase a new set of wheels. The new car loans are offered at interest rates ranging from 8 percent to 15 percent per annum. Used car loans are taken when an individual opts for a second-hand or a used car. The rate of interest for these loans is slightly higher compared to new car loans. However, note that the loans against used cars are available for cars that are not older than 5 years. The third option is a loan against a car, which can be opted by keeping an old car as collateral with the car financier.
Advantages and Disadvantages of a New Car Loan
Advantages: When you apply for a new car loan, you get the warranty from the manufacturer that helps in reducing the work on the part of the lenders. Banks prefer to disburse such loans easily because the risk is lower, and the total amount disbursed is much higher. You can get a loan for about 90% of the cost of the car and the interest on the same will also be less. Most of the lending institutions nowadays are offering loans on the ‘on-road’ cost which helps in reducing the applicant’s loan burden. The tenure of the loan is usually between five to seven years so that borrowers can manage their EMIs comfortably. The interest rate ranges anywhere from 9% onwards.
Another added advantage that individuals enjoy while purchasing a new car is the latest features and technology which means you can find a car that has higher mileage and lower emission. There is a range of additional features in new cars which can enhance your driving experience when compared to used cars.
Disadvantages: Purchasing a brand-new car comes with an added cost of insurance. The premium for new car insurance is much higher than the second-hand or old cars. So, even if the interest rate of a new car loan is low, when you add the insurance cost, the total cost of your loan will go up.
Advantages and Disadvantages of a Used Car Loan
Advantages: In a used car, there is no such warranty that you get while applying for a new car loan. Since you are buying a used or second-hand car, the cost will be relatively cheaper than a new car. The insurance cost will also be less. In a used car loan, the loan amount will be lower, and the repayment terms will be flexible. Banks offer tenure of up to 60 months to make the repayment of the loan affordably.
Disadvantages: In the case of a used car, banks offer up to 80% of the value of the car as a loan and the rest you will have to pay as a down payment. The rate of interest will also be higher when compared to a new car loan. This ranges around 13% onwards and the EMI burden will also be higher for you.
Which is the suitable option for you?
Before choosing between the multiple loan options, you need to consider your needs and preferences and then choose the most suitable option. Opting for a new car loan will be the best choice when you are willing to purchase a new car and have enough funds with you. On the other hand, a used car loan will be a smarter choice when you do not want to spend a lot and want a reasonable performance under a small budget. If you need to fulfil any immediate financial commitment, then you can avail of a loan against the car and raise the funds quickly.