When it comes to buying a car not everyone can afford to pay the price of the car in one lump sum. But what they can afford to do is to pay for the car in monthly instalments that are easier to pay. These instalments are the result of car loans that are offered by banks to their customers in order to enable to buy their dream cars. As common as they are, it must be remembered that not all car loans are the same. The biggest difference between some of these car loans is that while one is meant for new cars, the other is meant used cars. These loans exist because sometimes it can happen that the customer's dream car may actually be a used car which may require the help of a bank to finance. So what is the difference between these two loans? To answer that question, first let’s take a look at the two loans.
What is a new car loan?
A new car loan, by its very definition, is meant only for brand new cars or cars that have never had any owners. These loans offer repayment durations of about 3 years to 9 years. As far as the loan amount is concerned, it can range from 100% of the on-road price of the car to 90% of the cost of the car. Many of the new car loans also offer financing for the payment of road taxes and insurance for the car. The eligibility for these loans can be different from one bank to another however generally it tends to be for individuals between the ages of 18 years and 60 years of age who are earning a minimum monthly income of RM 2,500 or more. In some cases the banks may reduce the income requirements to as little as RM 1,500 but the requirement remains subject to bank policies.
What is a used car loan?
A used car loan can be availed when the car intended for purchase has already been owned by someone in the past. In case of a used car the loan amounts can come and the interest rate can also change to slightly higher or lower than those for new car loans. These loan also have restrictions on the age of the cars but do tend to follow the same general guidelines as the regular car loan in terms of eligibility and paperwork.
Difference between a new and a used car loan
- Smaller loan margin
- If the car is 1 to 2 years old then the finance can be 90%.
- If the car is 2 to 5 years old then the financing will be about 85% of the cost.
- If the car is 5 to 10 years old then only 80% of the cost will be financed.
- Shorter repayment periods
- Restriction on age of car
- Different interest rates
With a new car loan, banks will fund up to 90% of the cost of the car or, and in some cases, 100% of the on-road price of the car. With the used car loan the loan margin can vary from 80% to 90% of the cost of the car. The loan margin is determined by the age of the car. For example a bank can decide that:
Even the repayment periods are subject to the age of the car when it comes to a used car loan. When it comes to a new car loan, if the maximum tenure is 9 years, then the customer will have the freedom to choose that duration but with used cars, the repayment period reduces as the age of the car increases. This means that a loan for a car that is only a year or so old may get a tenure of 9 years but that for a car which is nearly 8 to 10 years old, may get a tenure of just 3 years.
There is no age restriction on the car loan when it comes to new cars since they are almost always sold within a short period of time but with used car loans, most banks will only provide loans for cars that are no older than 10 years. In some cases, institutions may not even finance a car that is more than 8 years old.
In the case of new car loans, the interest rates can be different from those charged if the car in question is a used car. The difference would depend on the bank that offers the loan as will the instance of the rates for used cars being higher or lower than new car loan rates. Most banks charge separate interest rates for both loans but some may charge the same.
What should you go for?
The answer to this question will obviously depend on the type of car you are going in for but if your budget for a car is not too big and all the new cars are not really a wise idea then a used car will be the one you can buy and to pay for it, a used car loan will be a good option.