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Home / Money / Personal Finance /  Check which bank offers lowest interest rates on used cars loans

Lenders usually have a considerable difference in the interest rates between a new car and a used car loan. The difference can be over 5% in some cases.

For example, Axis Bank's interest rate on new car loan is in the range of 8.65%-10.9%. For a used car, the bank charges 14.4%-16.4%, according to its website.

Among public sector lenders, Canara Bank, Bank of India and Union Bank offer lower rates on pre-owned cars compared to other government-owned banks. Canara Bank offers used car loan 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.

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Among private lenders, South Indian Bank offers 13.3%-13.75% interest rates for pre-owned car loans, HDFC Bank charges 13.75%-16%, and Federal Bank 13.8%.

If borrowers are looking for a long tenure loan, HDFC Bank’s maximum tenure is seven years. Most other lenders offer a loan for up to five years. Some, like the Bank of India, has a maximum tenure of three years.

The critical factor in a used car loan is the loan-to-value (LTV) ratio -- the amount of loan a lender is willing to offer borrowers against the value of the car. While public sector banks are cheaper, they also provide a lower LTV. Canara Bank and Union Bank of India offer an LTV of 60%.

Suppose your used car is costing 5 lakh. These banks will offer a loan of up to 3 lakh.

Among government-owned banks, State Bank of India offers a higher LTV of 80%.

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 up to 100% of the car value.

(Do you have personal finance queries? Send them to mintmoney@livemint.com and get them answered by industry experts)

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