The interest rates associated with used car loans are higher. While one can have a new car loan with interest rates in the vicinity of 14%, the used car loans have higher interest rates in some cases they can even go up to 20%. This significantly increases the cost of a used car loan.

Another drawback associated with used car loans is the amount of loan sanctioned. In case of a new car loan one can easily get a loan up to 90% of the car amount and under certain conditions banks do not hesitate to fund even up to 100% of the car amount. This amount is drastically reduced when it comes to giving a used car loan. A used car loan covers only up to 80%- 85% of the cost of the car. In some cases like the ABN Amro Bank it drops to 70% of the cost of the car.

In case of new cars some banks like State Bank of India offer loans at On Road Prices of the car, thus covering the entire burden of the car loan. This is never the case with used car loans. The insurance costs, road tax etc. will always be borne by the owner in case of used car loan. This significantly increases the up front amount to be paid.

The repayment tenures of used car loans are considerably shorter than those of new cars. While the new car loans can be repaid in 84 installments, used car loans might be available for 36 months at maximum. Depending on the loan amount and interest this can considerably increase the EMI.

Conclusion

There are pros and cons of buying a new car and an old car. Similarly the used and new car loans have their own benefits and drawbacks. Before deciding on a particular car loan, it is essential that one should pay special attention to interest rates, down payments, loan amount, processing fees, loan tenures and other important terms associated with the car loans.