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Tata Capital > Blog > Loan for Vehicle > Difference between Fixed and Floating Rate of Interest for Used Car Loans

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Difference between Fixed and Floating Rate of Interest for Used Car Loans

Difference between Fixed and Floating Rate of Interest for Used Car Loans

Since the pandemic, owning a personal vehicle has become a popular choice to avoid public transport's crowded environment.  However, buying a new car can take a hefty toll on your pocket and quickly exhaust your bank balance. Thus, buying a used car is a smarter solution that can help you save a fortune.

Why should you take a used car loan?

A used car loan can help you purchase a pre-owned car at affordable interest rates along with a flexible repayment tenure. Moreover, you can cover up to 95% of the car’s total value by availing this loan.

The tenure for second-hand car loans can range between 12 to 60 months, and the used car loan interest rates can start at 15%, even lower, depending on your lender. You can apply for a loan to buy a used car online with minimal paperwork. Hence, taking a second-hand loan is perhaps the best way to finance your pre-owned car.

Additional Read: Top Benefits of Used Car Loan

What are fixed and floating interest rates on pre-owned car loans?

A fixed-rate of interest remains consistent throughout the loan repayment tenure and is paid through equal instalments as stipulated at the time of application. What makes this kind of interest suitable is that the rate is not affected by market fluctuations.

On the other hand, the interest rate that changes as per the market scenario is called a floating interest rate. As the name suggests, this kind of interest is volatile and gets revised every time the financial institution's base rate changes.

Read on to know the critical difference between these two ROIs before opting for any one type of used car loan interest rate.

Fixed vs floating interest for used car loan

When it comes to fixed vs floating used car loan interest rates, there are some advantages and drawbacks associated with both. The fixed rate of interest is usually 1 to 2.5% higher than the same lender's floating interest. The fixed-rate cannot be increased or decreased even if the RBI announces a rate cut.

On the contrary, a floating interest rate increases and decreases with the market and is usually priced lower than the former. However, the fluctuating nature of floating rates makes it challenging to set a budget as the monthly instalments may keep changing.

If you are confused about choosing the correct interest type, know that your lender may allow you to switch from fixed to floating or vice versa, even after taking the loan. Lending institutions usually charge a small fee for this conversion. 

Additional Read: 4 things to keep in mind before you buy a second-hand car on loan


Looking for used car loan at attractive fixed or floating interest rates? If so, your search ends at Tata Capital – India’s leading lending institution.

Start by visiting our website to check your used car loan eligibility. After which, you can calculate your potential monthly instalments with us by using our online used car loan EMI calculator.

To know more about our pre-owned car finance options, visit Tata Capital’s website.

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