Used-car financing has experienced remarkable growth, with a five-year compound annual growth rate (CAGR) of 26.2 per cent, according to credit bureau CRIF High Mark. The borrower base has expanded 2.4 times between June 2021 and June 2026, indicating significant market penetration. However, this growth comes with increased borrowing risks that buyers must carefully consider before securing financing for used vehicles.
Used-car loans generally carry higher interest rates because vehicles have already depreciated, as noted by BankBazaar CEO Adhil Shetty. Lenders typically offer conservative loan-to-value (LTV) ratios and shorter tenures due to the vehicle's shorter remaining life and less predictable resale value. Some lenders finance up to around 90 per cent of a used car's current value, compared with higher financing available for new cars. The lender's valuation may differ from the seller's asking price, potentially requiring borrowers to make a larger down payment.
Vehicle age significantly affects loan eligibility and terms, with lenders becoming more conservative as vehicles get older. Cars24 CFO Shivanshu Makkar explains that lenders generally set combined age-and-tenure limits of around 8 to 10 years. Older vehicles may attract higher rates or stricter terms due to lower value and remaining useful life. Financial experts recommend tenures of 36 to 48 months that balance monthly cash flow while keeping the loan within the vehicle's remaining lifespan. For used vehicles between three and seven years old, maximum loan terms extend to 75 months, while vehicles eight years or older are limited to 63 months.
Financial advisors recommend down payments of 20-30 per cent to reduce total interest costs and protect against loan-to-value risks. SahajMoney.com founder Abhishek Kumar suggests that total vehicle-related expenses, including EMI, insurance, and routine maintenance, should not exceed 15-20 per cent of net monthly income. Borrowers should maintain a total debt burden within 40-50 per cent of take-home pay and ensure EMI affordability before selecting loan terms.
Current market rates for used-car financing show APRs ranging from 4.79% to 5.44% depending on loan terms and vehicle age. For newer vehicles (current or previous two model years), rates start at 4.79% for 1-36 month terms and increase to 5.44% for 52-63 month terms. For older used vehicles, rates begin at 4.94% for shorter terms and reach 5.44% for extended tenures. When comparing lenders, borrowers should look beyond headline interest rates to include total loan costs, processing charges, and foreclosure provisions. As reported by Spinny Capital CEO Amit Kakkar, borrowers should review the Key Fact Statement (KFS) to understand effective borrowing costs and compare LTV ratios.
