Why New and Used Car Loan Interest Rates are Different

Used car loan interest rates tend to be higher than those on new cars. The main reason for the difference is the increased risk a lender assumes with a used car loan. A used car loan has higher default rates than those for new car loans.

Value of the Vehicle

It is harder for a lender to assess the absolute value of a used vehicle. Lenders have to use a combination of the vehicle's history and market standards. Lenders use tools like the Kelley Blue Book or NADA to estimate the value of a used car. It is important they know the value of the car because they will hold the title to the car as collateral. They are assuming risk of nonpayment and need to know what a car is worth.

Less Dealer Loan Options

When you purchase a new car from a dealer, there are usually additional incentives to obtain financing with that lender. Those incentives may include discounts on the sticker price or lower interest rates. However, when you purchase a new car, a dealer will not offer you as many financing incentives. You will be required to negotiate the loan in order to get the best interest rates.  

 

 


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