The are many decisions that an individual has to make when it comes to buying a car. It is not about just getting the money in place or getting the loan. Simply picking a model or brand of one’s choice is also not enough when buying a car. One of the first questions you have to deal with is whether you want to buy a new car or a used car. Either option will make a big difference to your finances. If you are planning to opt for a loan, you need to assess whether you qualify for a loan or not.
By and large, companies offer three types of car loans. They are new car loans, used car loans and loans against cars. A new car loan is opted for when one purchasing a brand-new car. Such loans are offered at interest rates ranging from 8%-15% per annum. When an individual goes in for a second hand or used car, banks offer used car loans. The rate of interest for these loans is slightly higher when compared to new car loans. It may be noted that the loans against pre-owned cars are available for cars that are not older than 5 years. Loans against a car can be opted for by keeping an old car as collateral with the bank.
Advantages of new car loans
When it comes to taking a car loan, banks prefer to distribute loans for new cars because of the very low-risk factor involved. This is when the loan amount disbursed is also higher. It is also due to the fact new cars come with a warranty from the manufacturer, hence it reduces some distress for the lenders.
In case of a car loan, a borrower can get a loan for about 90% of the cost of the car. Various banks also provide new car loans on the ‘On-road cost’ which relieves the burden of the borrower and at a low-interest rate. The repayments of these loans are completed between 5-7 years, benefiting the borrowers who can manage their EMIs comfortably.
Disadvantages
There are certain things to keep in mind while taking a loan to finance a new car. There is an insurance premium attached to the new car. It is to be noted that the borrower’s annual cash outflow will rise.
Advantages of used car loans
The cost of a used car will be lower than that of a new car, hence the cost of insurance for the borrower will also go down. The borrowing amount will be lower, but the repayment terms will be flexible. The repayment will end in 4-5 years.
Disadvantages
For a used car, the loan amount usually limited to a maximum of 80% of the value of the car. The rest will be treated as borrowed on a down payment. Because of the high-interest rate, the EMI will be higher too.
