Lenders usually have a significant difference in interest rates between a new car loan and a used car loan. In some cases, the difference can be more than 5%.
For example, Axis Bank’s interest rate on a new car loan is in the range of 8.65-10.9%. The bank charges 14.4% -16.4% for a used car, according to its website.
Among public sector lenders, Canara Bank, Bank of India and Union Bank offer lower rates on used cars compared to other state-owned banks. According to Paisabazaar.com, Canara Bank offers a loan for a used car at 7.3% -9.9%, Bank of India gives a loan at 7.35-8.55%, and Union Bank provides them at 8.9-10 , 5%, according to data from Paisabazaar.com.
Among private lenders, South Indian Bank offers 13.3-13.75% interest rates on used car loans, HDFC Bank charges 13.75-16% and Federal Bank charges 13.8%.
If borrowers are looking for a long-term loan, the maximum holding period for HDFC Bank is seven years. Most other lenders offer loans for up to five years. Some, like the Bank of India, have a maximum term of three years.
The decisive factor in a used car loan is the Loan to Value (LTV) ratio – the amount of the loan a lender is willing to offer to borrowers based on the value of the car. While public sector banks are cheaper, they also offer lower LTV. Canara Bank and Union Bank of India offer 60% LTV.
Let’s say your used car is worth ₹5 lakh. These banks will offer a loan up to ₹3 lakh.
Among state-owned banks, the State Bank of India offers a higher LTV – 80%.
While private lenders charge more, they also offer better LTVs than public sector banks. South Indian Bank and Federal Bank offer 75% LTV. Axis Bank charges up to 85% and HDFC Bank can offer loans up to 100% of the car’s value.
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