Getting a Used Car Loan for Economy Car vs Luxury Car - Car Loan Blog - Tata Capital

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Getting a Used Car Loan for Economy Cars vs Luxury Cars

May 23, 2017

Dinesh was looking to buy a used car, and had a budget of Rs. 8 lakhs. But he could not decide whether to buy a luxury sedan for the whole family or two economy hatchbacks. He could use one, and his wife and kids could use the other. He decided to research a bit and check out his options.

Are you in a similar dilemma? Your decision about the type of the car can have an impact on your used-car loan. Go through this article to understand why.

The basics of a used-car loan

Most leading banks and NBFCs offer loans for buying pre-owned cars. These loans have a maximum tenure of up to 60 months. A used car loan is ideal for those who want to buy a vehicle within a smaller budget. This is a suitable option for those who want to perfect their driving skills or do not have the finances for a new car.

Related: 5 Things you must ensure your used car has

Used-car loans have become popular in India as the demand for them is high. A study says that the main reason for the popularity of a used car is its price. A car can be available at almost half its original price after being in use for a couple of years, while remaining in good condition. People who do not want to spend a lot, make do with an older car. After all, it serves their purpose. This is true for both, luxury and economy used cars.

Lenders see this as an opportunity and offer used-car loans. That way, customers with all kinds of financial means can own a vehicle.

Used-car loans for economy cars and luxury cars

The demand is higher for used economy cars as compared to used luxury cars. The loans for the two types of cars also have some differences. These are:

  • Loan principal: The cost of a used Maruti Swift could be around Rs. 3 lakhs, while the cost of a used BMW would not be less than Rs. 15 lakhs, unless the car is very old. So, the loan amount, too, would differ between an economy and a luxury car. This factor differentiates the two varieties of used-car loans.
  • Repayment: Next, we come to the equated monthly installments (EMIs) for used cars. When you take a large used-car loan to buy a luxury vehicle, you end up with a larger debt, ultimately paying higher EMIs. The total loan for an economy car would be much lower, and so would the EMIs.
  • Insurance premiums: Considering the cost of used luxury cars are higher than economy cars, the insurance premiums are higher as well. That is usually because of the difference in values of the two types of cars. This can also affect the loan tenure. Since the amount and EMIs are higher for used luxury cars, it may take longer to repay the loan.

Related: Buying a luxury car is not a luxury anymore

  • Risk-related premium: A good, well-made car could attract lower interest rates even after being used for a few years. This is because a well-made car with a good engine is unlikely to be less troublesome compared to another model. These are likely to be premium models. However, you may want to check your lender first.

To sum it up

The kind of vehicle you buy has an impact on your used-car loan. Luxury or used, the cost can be affected by the car’s age, kilometres covered, features, current condition etc. So, keep all these points in mind while choosing used car.