The rise in traffic jams, high petrol prices, cars wearing out quickly, increased inflation on car prices are all by-products of population explosion in India. Despite these issues, owning a personal vehicle remains the dream of every man. And with the easy availability of car loans, this dream has turned into a reality for millions. But owing to exorbitant pricing, several people are opting for economical used cars over new ones, thereby creating demand for used car loans in the lending industry.
As the name suggests, used car loans are typically taken out when an applicant wishes to purchase used cars. However, several loan seekers lack information about the features of second hand car loans. If you too are unsure about the difference between a car loan and used car loans here is how you can differentiate between the two.
- Rate of Interest
One of the primary distinguishing factors between regular and used car loans is the rate of interest. Loans for new car loans usually come at a cheaper rate whereas second hand car loans have a higher interest rate. However, used car loan interest rates depends on the credit score of the loan seeker. A person with a poor credit score and defaults may experience a substantial increment in the interest rates by the lender whereas an applicant with a solid credit score will not witness a major difference between the interest rates for normal and used cars.
- Loan Size
A new car loan is considered to be a large loan whereas a person planning to get a second car loan will be applying for a small loan. The reason for this is that the price of a new car is much higher and while applicants can opt for money down financing by car dealers, they have to pay interest in addition to the principal balance. And so, used car loans, although attached with comparatively higher interest rates, prove to be cheaper in the long run.
- Value of Cars
A major reason for purchasing used cars is that unlike good used cars, the value of a new car depreciates the second it exits the car dealership. Several used cars have warranty coverage, certified pre-owned programs with assurances and extended warranty and insurance coverage. And thus, the total terms of a used car loan offer a much better deal when compared with the actual value of the car.
NBFCs such as Tata Capital are offering affordable interest rates, flexible EMI options on their used car loans to help customers purchase their dream car without any hassle.
