A car loan, whether new or used, is a considerably important decision. Both affect your finances in different ways. Hence, it is natural to get confused about the right choice.
It is not difficult to choose between the two options if you delve deep into the relevant factors. With the help of a guide below, you can easily understand and then decide whether to choose a new or used car loan in Ireland.
Let’s read and know better for a rational decision as a borrower.
What are car loans?
A car loan is a borrowing option to fund your financial needs to purchase a new or used car. The loan is paid in instalments distributed over a tenure of one to seven years with interest. There are varied options for car financing.
Types of car finance –
- Personal loans – These are unsecured loans for a tenure of 1 to 7 years that you pay back in equal instalments at fixed rates. These are offered by banks, online lenders, online brokers and credit unions. You borrow money, pay for the car purchase and get the car ownership right away.
- Hire purchase – Until you make the final payment, the dealer or lender owns the car. The funds are secured against the vehicle.
- Dealer finance / Manufacturer finance – Car deals often have special low-interest or promotional car finance options. But these are common in the case of new cars, especially hybrid and electric vehicles.
- Personal Contract Purchase – It is used for new cars, mainly with lower monthly payments. But if you wish to keep the car, you need to make a big balloon payment at the end of the tenure.
Dissimilarities between new car loans and used car loans
Both options are different in many aspects. Know about them here through a comparison and decide which one is better. Is it better to get a new car loan in Ireland or used car finance?
| Factor | New car loans | Used car loans |
| APR | Usually, lower rate between 5.5% to 7.8% considering low risk. | Higher rates between 7.9% to 11.5% . |
| Loan term | Typically, between 5 to 7 years. | Usually, 3 to 5 years. |
| Warranty | Between 3 to 5 years with fewer repair issues or charges. | Limited or no warranty due to high depreciation cost. |
| Vehicle value | Higher value with faster depreciation in initial years. | Lower purchase power but more maintenance charges. |
| Insurance premium | Higher insurance premium as the new cars have higher repair cost. | Lower cost due to lower market value. |
| Eligibility for grants | Easy eligibility for VRT relief, SEAI grants, and green car loan offers | Usually not eligible for car grants or EV grants. |
| Best for | Drivers seeking long-term ownership and latest technology. | Buyers with limited budget and affordability. |
| Total ownership cost | Higher cost but predictable running costs. | Lower upfront cost but varied maintenance cost. |
Cost Example: New vs Used Car Loans
An example of the two loan options is the best way to understand the cost and know your affordability.
New car loan example –
- Car Price: €25,000
- Loan Amount: €20,000
- APR: 6.5%
- Term: 5 years (60 months)
- Deposit: €5,000
Monthly Repayment: €392.45 Total Repayable: €23,547 (Interest = €3,547)
Used car loan example –
- Car Price: €15,000
- Loan Amount: €12,000
- APR: 8.9%
- Term: 4 years (48 months)
- Deposit: €3,000
- Monthly Repayment: €297.52, Total Repayable: €14,280 (Interest = €2,280)
Pros and Cons of New Car Loans
Let’s see both sides of a coin. New car loans have their good and risky sides. The table below provides quick information.
| Pros | Cons |
| Lower interest rate with better green loan options and lower APRs. | Higher purchase price considering the new model and features. |
| Latest features and technology with better safety and performance. | Longer commitment that increases the total cost of borrowing. |
| Predictable maintenance cost with fewer unexpected bills. | Higher insurance premiums as new cars have higher costs. |
| Manufacturer warranty helps avoid repair costs. | Quick depreciation, especially in first one to two years. |
| Government incentives for electric cars through Grants, reduced VRT and lower tax. | New cars have lower mileage in the initial months. |
Pros and Cons of Used Car loans
Like new car finance, used car finance options also come with their own advantages and disadvantages.
| Pros | Cons |
| Lower upfront cost as you borrow small and repay fast. | Higher interest rates due to the higher risk in the case of used cars. |
| More flexible loan options with a small amount required. | No EV grants or tax relief as such schemes exclude used vehicles. |
| Slower depreciation as the vehicle has already crossed the initial years. | Maintenance and repair costs are high due to low warranty coverage. |
| Good value for money as you can buy a good model at a lower value. | Shorter lifespan due to depreciation, and a new car may be required soon. |
| Less insurances as used vehicles have a smaller insurance amount. | Uncertain vehicle history and hidden issues can be there. |
Tips to choose between new and used car loans
Clear your mind by using the factors below to know what both the car finance options want from borrowers for approval.
| Factor | New car loans | Used car loans |
| Credit score | Good to excellent score get lower rates. | If you have fair or bad credit or need to build a score. |
| Budget | You can repay higher monthly instalments. | You want a lower monthly cost. |
| Mileage & longevity | You want to keep the car for at least 5 or 5+ years. | You don’t seek a great performance. |
| Car type | EV or hybrid (to use grants and incentives. | Petrol/diesel versions that are older but reliable |
| Warranty & maintenance | You don’t want to spend repeatedly on that. | You are fine with some maintenance costs. |
| Depreciation risk | You are ready for speedy depreciation in the initial years. | You need a car with lasting value. |
Tips to prepare for a loan application
After all the detailed information above, here are some tips for a safe application to get smooth approval on the first try.
- Check your credit score – Your credit report should be error-free, as it can affect your approval chances. Make sure old information is correct and the latest is updated.
- Know your budget – Make a budget that includes your needs for the actual loan amount needed, and also make a repayment budget. The latter convinces the lender of your credit purchasing power.
- Compare APRs – Compare lenders as per their offered APRs and choose the one with the lowest APR. Also, confirm about other charges, such as early repayment fee, that affect the APR.
- Get approval – Once you compare, choose a lender and apply to it. Check your affordability on a loan calculator to apply safely and get approval at the first chance.
- Read the terms – Once approved, read the terms and conditions carefully and look for any hidden charges. Confirm with the lender in case of any doubt.
- Inspect used cars – If you are buying a used car, inspect it carefully and get all the relevant certificates about mileage. Know its history and previous car owners.
- Use online brokers – The brokers like Loanrick do all the hard work for you. Just fill in the right details in the application form, and they will get you matched with the right lender.
Hence…………
You can now decide better which option will go perfectly in your condition. Calculate your loan amount requirement, know your vehicle priorities, check your creditworthiness and decide. This takes time, but it is worth it, as whether it is a new or used car, the role of the vehicle is significant for you. Technically, these days, getting an answer to how to get a car loan is easier than which car loan should I get? Hence, decide your priorities and you will be able to choose.
