In short
- A vehicle is a depreciating asset, so the loan is secured against a value that is falling.
- Used vehicles usually mean a smaller advance against value, a shorter tenure and a higher margin.
- Match the tenure to how long you will actually keep the vehicle.
The lender is lending against a falling asset
Unlike property, a vehicle loses value steadily. The lender knows this, so the amount it will lend — and the tenure over which it will lend — are shaped by what the vehicle is expected to be worth. A loan secured against something whose value is falling is read differently from one secured against something that holds its value.
New vehicle finance
A new vehicle usually supports a larger advance against its value and a longer tenure, because the lender's cushion is larger at the start. Dealer arrangements can simplify the process, but the terms still belong to the lender and should be compared like any other loan.
Used vehicle finance
A used vehicle is already partway through its depreciation, so the advance against value is usually smaller and the tenure shorter. Older vehicles, unclear ownership history or poor condition make lenders more cautious. The vehicle's condition, age and documented history carry real weight.
The margin and the on-road costs
A vehicle loan rarely covers the whole on-road price. Insurance, registration and road tax typically sit outside it, and you fund a margin as well. Add these together before you decide what you can afford, rather than discovering them at the dealership.
Tenure should match ownership
The classic quiet loss in vehicle finance is a tenure longer than you keep the vehicle: you end up paying instalments on a car you have already sold. Choose the tenure against how long you genuinely intend to keep it, not against how low you can push the instalment.
Questions this raises
Should I take the longest tenure available?
- Only if you will keep the vehicle that long. Otherwise you risk paying for an asset you no longer hold.
Can I finance the insurance and registration?
- Sometimes, but it is usually cheaper to fund the on-road costs separately than to borrow for them over a long tenure.
Read the full guidance on vehicle loan.