New and used car loans he the same purpose: They help you buy a car. But outside of that, there’s a lot of variation between the two.
Interest ratesInterest rates are usually lower on new car loans than they are on used car loans.
Used car loans are riskier for the lender, and the riskier a loan, the higher the rate. Used cars are harder to value than brand-new ones. Depreciation is less predictable than it is on a new car. And depending on how much the used car is worth, the borrower may be more likely to end up underwater on their loan.
New car loans: Generally he lower rates Used car loans: Generally he higher rates
Eligibility requirementsEligibility requirements can be easier to meet on a new car loan than on a used car loan.
Unless you’re specifically targeting bad credit car loans, it can actually be easier to qualify for a new car loan than a used one. That’s due to a lot of what we discussed above. New car loans are overall less risky for lenders.
Also, older cars are more likely to break down, and when that happens, the borrower may be more likely to stop paying. The lender might he a higher credit score minimum to make up for this extra risk.
New car loans: Can be easier to qualify for, unless you’re targeting bad credit car loans Used car loans: Can he higher borrower requirements to make up for extra risk tied to an older car
Loan amountsLoan amounts are usually lower on used car loans than they are on new car loans.
This one is simple. New cars cost more than used cars. Naturally, new car loans are bigger. As a rule, the more you borrow, the more interest you’ll pay (unless you he a great rate and you pay your loan off early).
New car loans: Generally he higher loan amounts Used car loans: Generally he lower loan amounts
IncentivesIncentives are almost always better on a new car than they are on used cars.
Manufacturers often offer cash rebates and low or no interest for a certain amount of time (called an introductory period). The only manufacturer incentives you’ll typically find on a used car are on certified preowned vehicles.
New car loans: Generally he more incentives Used car loans: Fewer incentives, if any
Loan termsLoan terms are usually longer on new car loans than on used car loans.
The bigger the loan, the more time you’ll probably need to pay it off. In some instances, you can finance a new car for up to 84 months (seven years).
A long car loan might seem nice. You’ll probably he a lower monthly car payment. In reality, you should choose the shortest loan term you can comfortably manage. This’ll help you se total interest and make it less likely you end up owing more than the car is worth.
New car loans: Generally he longer loan terms Used car loans: Generally he shorter loan terms
How much is your vehicle purchase price?$5,000