Buying a second-hand car? The loan will usually cost more than a new car loan, sometimes much more. And if the dealer quotes a "flat" rate, the real cost can be higher still. This guide shows how used car loan rates compare with new car rates as of October 2026, why they differ, and how to get a better deal.
How much higher is a used car loan interest rate?
Here is what two banks publish for new and used cars:
| Bank (as of) | New car loan | Used car loan |
|---|---|---|
| SBI (page updated 15 October 2026) | 8.55% to 9.50% | Certified Pre-owned Car Loan: 10.60% to 15.75% |
| Union Bank of India (effective 8 October 2026) | 7.85% to 10.25% (salaried, by credit score) | Car not older than 3 years: 11.85% (score 700 and above), 11.95% (below 700) |
SBI lists these rates under a "Fixed Rate" heading, meaning the rate set at disbursement stays the same for the whole loan. Union Bank prices its vehicle loans over its EBLR (external benchmark lending rate) of 8.25%, which is RBI's repo rate of 5.50% plus 2.75%.
Both banks set the rate partly by your credit score, the three-digit number from a credit bureau that sums up your repayment history. Other lenders, including NBFCs (non-banking finance companies) and dealer-linked lenders, set their own rates.
Why do lenders charge more for used cars?
Lenders do not always publish their reasons, and each one decides its own pricing. But a few factors often play a part:
- The car is the security. A used car's value is harder to judge, and it may fall faster with age. That makes the loan riskier for the lender.
- Age limits. Some schemes only cover cars up to a certain age. Union Bank's published used car rate, for example, is for cars not older than 3 years.
- Your profile. Credit score, income and existing loans still matter, just as they do for a new car.
What does a higher rate cost you?
The EMI (equated monthly instalment) formula is: EMI = P × r × (1 + r)^n ÷ [(1 + r)^n − 1]. P is the loan, r is the monthly rate (yearly rate ÷ 12 ÷ 100) and n is the number of months.
For a loan of ₹5,00,000 over 5 years (60 months):
| Rate (reducing balance) | EMI | Total interest |
|---|---|---|
| 8.55% (low end of SBI's new car range) | ₹10,270 | ₹1,16,219 |
| 10.60% (low end of SBI's pre-owned range) | ₹10,772 | ₹1,46,304 |
| 15.75% (high end of SBI's pre-owned range) | ₹12,093 | ₹2,25,563 |
Within the same used car range, the gap between the lowest and highest rate is ₹79,259 of interest on this loan. Your credit score and the lender you choose can matter as much as the car.
Is the dealer's flat rate really cheaper?
Used car loans arranged at a dealer are sometimes quoted at a flat rate. With a flat rate, interest is charged on the full loan amount for the whole period, even though you repay part of it each month. A reducing balance rate, which banks use, charges interest only on what you still owe.
Example: ₹4,00,000 for 4 years (48 months) at 8% flat.
- Interest = ₹4,00,000 × 8% × 4 = ₹1,28,000.
- EMI = (₹4,00,000 + ₹1,28,000) ÷ 48 = ₹11,000.
- The reducing rate that gives the same EMI is about 14.35%.
Now compare a bank loan at 12% reducing for the same amount and period. The EMI is ₹10,534 and total interest is ₹1,05,610. That is ₹22,390 less than the "8%" flat loan, even though 12% sounds higher.
The fix is simple: ask for the Annual Percentage Rate (APR). Under RBI's Key Facts Statement (KFS) rules (check the latest directions), banks and NBFCs must give a KFS for retail loans sanctioned from 1 October 2024. It shows the APR: the yearly cost including the interest rate and all charges. Compare APRs, not headline rates.
What other costs come with a used car loan?
- Processing fee, with GST added
- Valuation or inspection fee, if the lender checks the car
- Insurance, sometimes arranged through the lender or dealer
- Documentation and stamp duty, which vary by lender and state
- Prepayment or foreclosure charges, especially on fixed-rate loans
Fees not listed in the KFS cannot be charged during the loan without your explicit consent.
How can you get a lower rate on a used car loan?
- Check your credit report first. RBI requires each credit bureau to give you one free full credit report a year. Fix any errors before you apply.
- Get a bank quote before visiting the dealer. Then you have a number to compare with the dealer's offer.
- Ask "flat or reducing?" and get the APR in writing.
- Borrow less, for a shorter time. A bigger down payment and a shorter tenure both cut the total interest.
- Consider a newer car. Some schemes, like Union Bank's, only cover cars up to a certain age.
- Ask your own bank. If you already bank there, ask whether it can offer a better rate. Lenders decide, but it costs nothing to ask.
- Check the prepayment terms. Under RBI's 2025 pre-payment rules, floating-rate loans to individuals for non-business purposes, sanctioned on or after 1 January 2026, carry no prepayment charge. Fixed-rate loans follow the lender's disclosed policy. Low or nil charges keep the door open to prepay or refinance later.
Do it in 10 minutes, free
Has the dealer quoted a flat rate? Use the LowerMyEMI flat vs reducing rate calculator to convert it into the real reducing rate, then compare it with a bank's offer. You can export the result to Excel or PDF.
Already paying a high rate on a car loan? LowerMyEMI can write one email per lender asking for a lower-rate offer, plus a letter to your own lender. You send them from your own email. We are not a lender and never promise a rate; each lender decides.