The Pros and Cons of New and Used Car Loans

Buying a car can be exciting and overwhelming at the same time. While the prospect of owning a car is great fun, the fact that you must consider several factors can be daunting. Before you get into the nitty-gritty, like the model, brand and features of the car, you must decide whether you want to purchase a brand-new car or a used car.

This is a critical decision as it will have a significant impact on your finances. You must determine the purpose of buying the car and assess if you will qualify for the car loan. In India, many lenders offer car loans for both new and used cars. However, the terms and conditions for both are different, and so are the interest rates.

Understanding the pros and cons of each type can help you make the right decision.

Pros and Cons of New Car Loan


  • When availing of a car loan, most lenders prefer giving loans to a new car as the risks are comparatively less. This is because new cars come with a manufacturer’s warranty, and therefore it reduces their liabilities to a certain extent. Thus, when you apply for a car loan to buy a new car, you have a better chance of getting approval.
  • If you apply for a car loan to purchase a new car, the lenders tend to finance up to 90% of the car’s on-road value. Thus, it significantly reduces your financial burden; you need not pay a high down payment to get the desired funds.
  • Another significant benefit of applying for a new car loan is that the interest rate is lower than the interest rate for used car loans. If you have availed of any loan before, you would know that even a small difference in the interest rate can significantly affect the EMI and affordability.
  • The tenure for new car loans usually ranges from 5 to 10 years. Thus, you get a decent amount of time to repay the loan and manage the EMIs without compromising on your other goals.


  • If you are buying a high-end car, you may have to borrow a high amount, which means the EMI will be high. This means your monthly cash outflow will increase.
  • Apart from the loan EMI, you must manage the car insurance premiums. The sudden increase in monthly payments can disrupt your budget and finances.

Pros and Cons of Used Car Loan


  • The used cars cost less than the new cars. This means you need not borrow a high amount, and the EMI payments would be affordable.
  • Most lenders in India offer used car loans for a tenure of 4-5 years. This means you get enough time to repay the full amount. You can easily manage the EMIs while taking care of your other everyday expenses.


  • In the case of used car loans, the lenders usually offer a fixed or limited amount; you can borrow a maximum of 80% of the car’s present value. This means you have to pay the balance amount from your pocket.

Final Word

Now that you know the benefits and drawbacks of new and used car loans, do your due diligence, assess your needs and finances, and make an informed borrowing decision.