Buying a car is no longer a dream that requires full payment upfront. With the rising demand for budget-friendly vehicles, many people are turning towards purchasing second-hand cars. To make this decision easier, financial institutions now offer a used car loan, specially designed to help buyers afford pre-owned vehicles without putting stress on their savings. In this guide, we will explore every aspect of used car loans, including benefits, eligibility, interest rates, and more.
What Is a Used Car Loan?
A used car loan is a type of financing provided by banks, non-banking financial companies (NBFCs), or digital lenders that helps individuals purchase a second-hand or pre-owned vehicle. The amount sanctioned under a used car loan is usually based on the car’s current market value and borrower’s profile.
Unlike new car loans, where lenders are more generous with amounts and tenure, these loans come with slightly higher interest rates and shorter repayment periods. However, with proper planning and understanding, they can be a great way to own a reliable vehicle without breaking the bank.
Key Features of Used Car Loan
Here are the primary features associated with a used car loan:
- Loan Amount: Can go up to 90% of the car’s valuation.
- Tenure: Usually ranges between 12 to 60 months.
- Interest Rate: Slightly higher than new car loans.
- Processing Fees: Generally between 1% to 3% of the loan amount.
- Repayment Flexibility: Options for EMI, part-prepayment, or foreclosure.
Benefits of Taking a Used Car Loan
Opting for a used car loans provides multiple advantages:
- Affordable Ownership: Helps you buy a car even if you have limited savings.
- Quick Approvals: Most lenders now offer instant approvals with minimal paperwork.
- Flexible EMI Options: Allows you to manage monthly budgets efficiently.
- Improved Credit Score: Timely repayment boosts your credit profile.
- Multiple Lender Options: Wide range of banks and NBFCs offering this facility.
Eligibility Criteria for a Used Car Loan
Before applying, make sure you meet the eligibility requirements. Though these may vary from lender to lender, here are the common parameters:
| Criteria | Requirement |
|---|---|
| Age | 21 to 65 years |
| Employment Type | Salaried or self-employed |
| Minimum Income | ₹15,000 to ₹25,000 per month |
| Credit Score | 650 or above (preferred) |
| Vehicle Age Limit | Less than 10 years old (some lenders allow 12) |
Documents Required for Application
Applying for a this type of loan is easy if you keep the following documents ready:
- Identity proof (Aadhaar, PAN)
- Address proof (Utility bill, passport)
- Income proof (Salary slips, ITR, bank statements)
- Car documents (RC book, insurance papers)
- Passport-size photographs
🚙 Used Car Loan Interest Rates Comparison (2025)
| Bank | Rate Range | Fixed / Floating | CIBIL-Based Rates | Women/EV Concessions | Loan Products & Key Terms |
|---|---|---|---|---|---|
| State Bank Of India(SBI) | 11.70% – 15.25% p.a. | Fixed (CIC-based tiers) | • 800+ CIC: ~11.75% • 775–799: ~12.00% • 757–774: ~12.5% (rises by ~0.5% per lower tier) | 0.5% concession for EV (two-wheelers) | • Certified Pre-owned Car Loan • Up to ₹100 lakh, tenure max 5 yrs <br>• Processing fee: 1.25% (₹3.75‑10k) + GST |
| Axis Bank | 13.55% – 15.80% p.a. | Fixed (no resets) | CIBIL, car age & profile influence spread; best ~13.55% | None | • Used Car Loan • Tenure up to 7 years, funding 85% of car value |
| ICICI Bank | 11.25% p.a. onwards | Floating (CIBIL-based) | Starts at ~11.25% for high-credit scores; adjusts by segment & tenure | None specified | • Used Car Loan (purchase, top-up, refinance) • Tenure up to 7 yrs |
🔍 Key Insights
- Lowest Rates for Used Cars:
- SBI offers the most competitive rate starting at ~11.70%, with incremental increases based on CIC score.
- ICICI begins at ~11.25% for top-tier applicants.
- Rate Types:
- SBI uses fixed CIC-tiered rates tied to credit score.
- Axis Bank offers a flat fixed rate (no resets).
- ICICI offers floating rates that depend on borrower’s profile and tenure.
- Credit Score Influence:
- SBI’s rate tiers drop ~0.5–1% as CIC score improves.
- ICICI’s base rate (11.25%) is reserved for those with strong credit profiles .
- Women & EV Concessions:
- SBI offers a 0.5% rate concession on EV vehicle loans (mostly two-wheelers).
- No explicit gender-based discounts noted for banks offering used car loans.
- Loan Products:
- SBI’s Certified Pre-owned Car Loan covers up to ₹100 lakh for cars up to 5 years old, with a 5-year max tenure.
- Axis Bank provides up to 85% funding over a 7-year term .
- ICICI supports flexible products (top-up, refinance) with a similar tenure cap.
✅ Recommendations
Buying EV → Opt for SBI due to EV concession (if eligible vehicle qualifies).
Strong credit score (750+) → Choose SBI for best value with CIC‑based rates.
CIBIL ~700–750 → Consider ICICI, flexibility might offset small rate difference.
Need longer tenure → Go with Axis Bank for 7-year repayment option.
Car Loan EMI Calculator
How to Apply for a Used Car Loan
Here are the common steps for applying:
- Choose your lender: Compare offerings based on interest rate and service.
- Check your eligibility: Use online calculators to pre-check eligibility.
- Submit documents: Upload or provide documents at the branch.
- Loan approval: Lender verifies information and approves the loan.
- Car valuation: The vehicle is physically inspected and valued.
- Loan disbursal: Money is credited to the seller or your account.
Things to Consider Before Taking a Used Car Loan
While this loan type is a helpful tool, be mindful of the following:
- Interest Cost: Used car loan interest rates are higher, so calculate total payable carefully.
- Hidden Charges: Look for processing fees, documentation charges, and prepayment penalties.
- Vehicle Condition: Ensure car is in good condition, with a full service history.
- Insurance: Confirm if the car has valid insurance and the option to transfer it.
EMI Calculation for Used Car Loan
Here’s a sample EMI calculation for different loan amounts and tenure options:
| Loan Amount (₹) | Tenure (Months) | Interest Rate (%) | Approx EMI (₹) |
|---|---|---|---|
| 3,00,000 | 36 | 13.50 | 10,200 |
| 5,00,000 | 48 | 12.75 | 13,350 |
| 7,00,000 | 60 | 14.00 | 16,280 |
You can use online EMI calculators to adjust values and plan better.
Used Car Loan vs New Car Loan: Key Differences
| Feature | Used Car Loan | New Car Loan |
|---|---|---|
| Interest Rate | Higher (11–18%) | Lower (8–12%) |
| Loan Amount | Up to 90% of value | Up to 100% of on-road cost |
| Vehicle Condition | Pre-owned | Brand new |
| Tenure | Up to 60 months | Up to 84 months |
| Processing Time | Faster | Moderate |
FAQs
A. Yes, most banks and NBFCs offer pre-owned car loans, though interest rates are typically slightly higher than for new cars.
A. Rates generally range from 11% to 16% p.a., depending on credit score, car age, and lender. For example:
SBI: 11.75%–15.25%
HDFC: 9.75%–17.45% (avg ~13.35%) for pre-owned vehicles
A. Mostly fixed-rate loans for used cars. Some lenders like SBI use fixed rates tied to your credit score tier.
A. Yes. Higher CIBIL scores (800+) can secure the lowest rate tiers (e.g., SBI starts ~11.75% for top-tier borrowers) .
A. No specific gender-based interest concessions are publicly mentioned for used car loans, although some EV-focused schemes offer small incentives .
A. Typically, lenders finance 80–100% of the car’s on-road price. SBI and ICICI offer 100% financing in some cases.
A. Tenures generally range from 1 to 7 years, with a maximum of 84 months common among banks like SBI, ICICI, Axis, and HDFC .
A. Standard documents include:
KYC (Aadhaar, PAN)
Income proof (salary slips, ITR)
Vehicle RC endorsed by bank
Proof of employment/business for salaried/self-employed applicants
A. Because pre-owned cars are seen as higher risk: depreciation, maintenance issues, and unclear history. Lenders offset risk with higher rates .
A. Yes—pre-closure is allowed, though you may be charged a nominal fee, typically a percentage of outstanding principal plus GST.
Final Thoughts
A used car loan is an excellent way to fulfill your dream of owning a vehicle without having to spend on a brand-new one. With increasing options, competitive interest rates, and simple eligibility criteria, more people are finding it easier to afford personal transportation.
Always compare the offers from different lenders, understand the total cost of the loan, and ensure the car is mechanically sound before you sign the deal. With proper research and planning, your used car loan can be a smart financial move that delivers long-term value.