New or Pre-owned Car Loan? Which one should you choose?

5 MinsOct 11, 2022

Ashok Dangle, 35, works in the administration department of a mid-sized Indian firm. After years of dreaming about owning a car, he thinks – thanks to a recent promotion and salary hike – he is in a position to take the leap.

New Car Loan or a Used Car Loan


However, Ashok is confused about whether he should opt for a new or pre-owned car. One major factor in his decision-making process is the loan he will have to take – whichever option he chooses – and what works best for his financial circumstances as well as aspirations.

This is what Ashok considered before he made his decision:

Advantages of a new car loan:

1. Latest Models: 
With a new car loan, Ashok could opt for the latest model of the car he wants to own. This will not only ensure that it has all the state-of-the-art features but also enjoys a higher resale value.

2. Tenure:
A longer tenure will help Ashok reduce his monthly EMI (Equated Monthly Installment). For instance, Axis Bank offers loans of up to seven years for new cars. Ashok could consider taking an auto loan from Axis Bank.

3. Loan to Value Ratio (LTV):
This refers to the percentage of the total on-road cost of the vehicle the bank will sanction as a loan. For instance, Axis Bank customers can get up to 100% of the on-road price as a loan for a new car. By opting for a new car loan, Ashok will have to shell out a minimal amount as an upfront payment.

4. Approval Process:
The approval process for a new car loan is pretty straightforward and can also be done online, thus significantly reducing the time involved. Additionally, several banks, such as Axis Bank, have tie-ups with various car dealers to offer exclusive deals to its customers.

[Also Read Apply for an instant car loan online anywhere, anytime]

Features of a pre-owned car loan:

Higher-End Model:
Car values tend to depreciate significantly, and as a result, if Ashok decides to buy a pre-owned car, he would be in a position to buy a higher-end model than if he opted for a new car. To some buyers, this makes a big difference in their self-image. Banks offer loans for pre-owned cars too, albeit at slightly different terms. Let us see what the differences are in the case of Axis Bank.

  • LTV: While Axis Bank is likely to give 100% of the on-road cost of a new car as a loan for a pre-owned vehicle, the Loan to Value (LTV) ratio is capped between 85-95% of the valuation amount. Ashok will have to shell out a higher base amount to buy the pre-owned car.
  • Tenure: While Ashok can get a new car loan for up to seven years, Axis Bank restricts the term to five years for a pre-owned car.
  • Age of the Car: The RM pointed out that while for a new car, its age is not a consideration, for a pre-owned vehicle, Axis Bank is likely to finance only cars less than ten years old.
  • Approval Process: The process to approve a pre-owned car loan is likely to take longer than that for a new car. This is because the bank will get its approved valuers to assess the state of the vehicle and its market value.

Ashok should keep all these factors in mind while opting for a new or used car loan. Axis Bank offers its customers a range of car loans. These loans have competitive car loan interest rates and other terms. You can also use Axis Bank’s Car Loan EMI Calculator online.

Disclaimer: The Source, a content creation and curation firm has authored this article. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.