Lenders usually have a considerable difference in interest rates between a new car and a used car loan. The difference can be more than 5% in some cases.
For example, Axis Bank’s interest rate on new auto loans is in the range of 8.65% to 10.9%. For a used car, the bank charges 14.4% to 16.4%, according to its website.
Among the public sector lenders, Canara Bank, Bank of India and Union Bank offer lower rates on used cars compared to other public banks. Canara Bank offers used car loan at 7.3% -9.9%, Bank of India provides loan at 7.35% -8.55% and Union Bank provides them at 8.9% -10, 5%, according to data from Paisabazaar.com.
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Among private lenders, South Indian Bank offers interest rates of 13.3% to 13.75% for used car loans, HDFC Bank charges 13.75% to 16% and Federal Bank 13 , 8%.
If borrowers are looking for a long-term loan, HDFC Bank‘s maximum term is seven years. Most other lenders offer a loan of up to five years. Some, like the Bank of India, have a maximum term of three years.
The critical factor in a used car loan is the loan-to-value ratio (LTV) – the amount of loan a lender is willing to offer borrowers relative to the value of the car. Although public sector banks are cheaper, they also offer a lower LTV. Canara Bank and Union Bank of India offer an LTV of 60%.
Suppose your used car costs ₹5 lakh. These banks will offer a loan of up to ₹3 lakh.
Among state-owned banks, the State Bank of India offers an 80% higher LTV.
Even though private lenders charge more, they also offer better LTVs compared to public sector banks. South Indian Bank and Federal Bank offer 75% LTV. Axis Bank charges up to 85% and HDFC Bank can offer a loan of up to 100% of the value of the car.
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