Derry led from start to finish, with Loughlin’s 43rd-minute goal enough to help then progress to a quarter-final away to Monaghan next Wednesday.
In a refreshingly open and entertaining game, both sets of full-forward lines had all scored from play by half time.
Derry got off to a dream start and scored an unanswered 1-3 in the opening five minutes, the goal coming courtesy of Niall Toner.
Down’s Pat Havern — who had an early goal disallowed for a push in the back — flicked the ball to the net in 19th minute, but Derry still led 1-8 to 1-5 at half time.
Down pushed hard in the final quarter with three points in a row, but Ben McKinless’s great save from Down’s Ronan McAlinden sealed a Derry win.
Scorers for Derry: N Loughlin 1-4 (3f), T O’Brien 0-3, N Toner 1-0, J Kearney, N McNicholl, P McElroy, C Murphy, D Tallon 0-1 each.
Scorers for Down: R Mason 0-6 (4f), P Havern 1-1 (1f), C Foy, C Rodgers. M Devlin 0-1 each, C Gallagher 0-1 (’45’).
DERRY: B McKinless; A Hargan, M Sweeney, D Brown; J Bradley, L McGoldrick, P McElroy; N McNicholl, C McAtamney; J Kearney, T O’Brien, P Cassidy; N Loughlin, C Murphy, N Toner
Subs: R McDonnell for Bradley (BC, 11), D Tallon for Cassidy (45), J Rocks for McElroy (58), D Mullan for Sweeney (60)
DOWN: M Reid; A McDonald, A Beattie, A Fulcher; A Doherty, R Burns, R Wells; C Devlin, J McKinney; M Devlin, C Foy, A Magee; P Havern, R Mason, C Gallagher
Subs: R McAlinden for Magee (38), S Cochrane for Beattie (43), C Rodgers for McKinney (43), T Murdock for McDonald (47), K Rice for Gallagher (50)
Referee: Noel Mooney (Cavan)