Car Loan Options: Types of car loan in India, used car loan vs new car loan

If you are planning to purchase a car of your own but do not have enough funds, banks and financial institutions let you borrow funds at an interest. Be it a brand new hatchback or a second-hand sedan, you can purchase the car of your dream with the help of the right car loan.

Car payment calculator with trade in negative equity

A car loan is nothing but the funds that one borrows from a lender for the sole purpose of purchasing a car of his or her choice. Lenders like banks and Non-Banking Financial Companies (NBFCs) offer auto finance to consumers in the form of new and used car loans. From luxury sedans to hatchbacks, car loans are available for almost all passenger vehicles and commercial vehicles in the market. A car loan is repaid with interest through Equated Monthly Installments (EMIs) over a specified period of time called the loan tenure.

• New Car Loan: As the name suggests, a new car loan can be used to purchase a brand new car straight out of the showroom. Banks offer new car loans at an interest rate of 9-14% p.a. for a loan tenure of 1 to 7 years. New car loans are available for most makes and models of cars in the market.
• Used Car Loan: Banks and NBFCs offer used car loans up to 80-85% of the price of the car at an interest rate of 12-18% p.a. for a loan tenure ranging from 1 to 5 years. Used car loans can be used to purchase pre-owned or used cars that are less than 5 years old or doesn’t exceed more than 10 years at the time of loan maturity.
• Loan against Car: When one is in dire need of funds, he or she can pledge his or her old car as collateral in order to obtain sufficient funds to purchase a new car. This is known as Loan against Car. Some banks in India offer loan against car up to Rs.10 lakh or 100% of the value of the car at an interest rate of 14-15% p.a. for a loan tenure of 1 to 3 years. For instance, if you have a bad credit score, you can pledge your old car to the bank as collateral to obtain some much-needed funds.