Buying a car is an exciting milestone, but understanding the financial aspects can be tricky. One of the most critical factors to consider is the car loan interest rate. Whether you’re purchasing a new car or a used one, understanding how interest rates work can save you money and help you make smarter financial decisions. Here's a simple guide to help you decode car loan interest rates.

What is a Car Loan Interest Rate?

A car loan interest rate is the percentage of the loan amount that a lender charges you for borrowing money. It determines how much extra you’ll pay in addition to repaying the principal amount (the money you borrowed). For example, if your loan amount is Rs 20,00,000 and the interest rate is 5%, you’ll pay an additional Rs 1,00,000 per year (assuming it’s a simple interest loan).Nearby car dealerships

Interest rates vary based on several factors, including your credit score, loan term, and the type of car (new or used). Understanding these factors is essential to securing the best rate.

Why Do Used Car Loan Interest Rates Differ?

When buying a used car, you may notice that the used car loan interest rate is typically higher than for a new car. This is because lenders consider used cars riskier. They have lower resale values and are more likely to lose value over time. To compensate for this risk, lenders charge higher interest rates.