What To Know About Used Car VS New Car Financing


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There is one fundamental thing to understand about the difference between new and used car financing. Namly, itís much easier to get new car financing. Not only is it easier, but Car Pro Show host and automotive expert Jerry Reynolds says new car loans also typically come with lower interest rates than offered with used car loans.

Reynolds explains there are two big reasons why this is the case:

  • First, used cars are a riskier investment for lenders. Spending money on repairs for aging models could cause people to not make their payments, which could even lead to a repossession. This is why interest rates are typically higher.
  • Second, captive finance companies have a vested interest in trying to approve new vehicle loans since it sells one of their products (captive finance companies include Ford Credit, Toyota Financial, etc).

For those two reasons above, Reynolds says a new car loan is viewed as a more attractive loan to lenders. Thatís not to say that you canít get a used car loan. Just expect to pay more when it comes to actually financing. So pay careful attention to the loan term and aim for a short loan term period since youíll likely pay more in interest.

The chart below supports what youíve read here. Experian Automotiveís 2019 Q1 financial shows the average interest rate for used car loans is nearly four percent higher than new vehicle loans.

Used Cars (2019 Q1)New Cars (2019 Q1)
$20,137 Average loan amount$32,187 Average loan amount
10.06% Average Interest Rate6.16% Average Interest Rate
$391/monthly payment on average$554/monthly payment on average
64.67 mo. average loan term68.85 mo. average loan term


Overall, the big takeaway is that itís easier to get new car financing and that new car financing typically comes with lower interest rates because newer model cars are perceived as less of a risk.


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