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Personal Loan vs Used Car Loan – Which Should You Avail to Buy a Second-Hand Car?


  • Which should you opt to buy a second-hand car - personal loan or used car loan?
  • Personal loans are easier to access, but are they cost-effective? Read this post to know the same

The most important question that you may face after you decide to buy a second-hand car is, which type of loan should you go for? Lenders provide personal loans and used car loans to finance this purchase. Ideally, you should choose the loan that is easy to access and cost-effective, besides having easy credit norms. So, which of the two loans stays true to these points? Read on to know the same.

Factors to Keep in Mind 

Rate of Interest:  It decides to a great extent the amount you’ll pay to the lender over the course of a loan. While personal loans come at a rate of around 11%-24% per annum, a used car loan can be available at a lower rate of 11%-16%. 

Quantum of Loan:  Personal loans can be financed to the extent of the deal amount, provided you meet the eligibility criteria. The deal amount could be the existing value of the car or any other sum, depending on how you transact with the seller. Whereas, when you opt for a used car loan, banks usually sanction upto 70%-80% of the value of the second-hand car. You need to pay the remaining amount from your own pocket. 

Example – You make a deal of ₹6 lakh to buy a second-hand car. The lender values the car at ₹5 lakh. So, you will most likely get a used car loan of ₹4 lakh (80% of 5 lakh). You thus need to pay the rest ₹2 lakh (6 lakh – 4 lakh) from your end. 

Credit Score: Lenders pull your credit report once you apply for a personal loan. If you don’t have a good credit score (above 700), chances are that the lender may reject your personal loan application. In case your loan is approved, the interest rate would most likely be more. Whereas, in the case of a used car loan, the credit score norms can soften a bit. 

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Loan Disbursal & Documentation Process: Personal loans can be disbursed much faster than used car loans. Generally, banks disburse personal loans in 2-4 days. Pre-approved personal loans, on the other hand, can be disbursed almost instantly. Whereas, it may take around a whole week in the case of a used car loan. The loan disbursal time also depends on the lender you’re opting for.

Also, the documentation process while opting for a  personal loan is amazingly seamless as compared to a used car loan. You can get a personal loan by just submitting your KYC documents, while it may take a few more documents to get a used car loan. 


As you can see that both personal loan and used car loan have their share of pros and cons, so choose the option carefully keeping in mind the above-mentioned factors.

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Personal Loan Interest Rates November 2019
Bajaj Finserv10.99% - 16.00%
Fullerton India14.00% - 33.00%
HDFC Bank10.75% - 21.45%
ICICI Bank10.99% - 18.40%
IndusInd Bank10.99% - 16.00%
Kotak Bank10.99% - 20.99%
RBL13.00% - 18.00%
Standard Chartered Bank11.50% - 18.00%
Tata Capital10.99% - 18.00%
Home Loan Interest Rates November 2019
State Bank of India/SBI8.15% - 8.80%
HDFC8.25% - 9.30%
LIC Housing8.35% - 8.95%
PNB Housing Finance9.25% - 12.00%
Piramal Capital & Housing Finance9.00% - 9.10%
Tata Capital9.20% - 9.35%
ICICI Bank9.20% - 9.65%
Bank of Baroda8.40% - 9.40%
Axis Bank8.90% - 9.15%
Citibank9.00% - 9.85%
Indiabulls Housing Finance Limited8.80% - 11.05%
Kotak Bank8.90% - 8.75%
DHFL9.05% - 9.95%
Reliance Home Finance8.75% - 14.00%