Why Used Cars Usually Have Higher Interest Rates
Depending on your conditions, the interest rate on a car loan may increase significantly. Your rate will depend on several factors, and one of them is a new or used car. GOBankingRates explains why used cars tend to have higher interest rates.
Part of the reason for the higher rates is that consumers buying used may have lower credit ratings, making them quality for higher rates. But it’s not only that. New cars usually have better incentives, which gives dealers the opportunity to offer better deals. Plus, used cars are harder to value.
New cars lose about 10 percent of their value when they are driven out of the parking lot , Carfax said . But with used cars, everything is more complicated. GOBankingRates explains that they may have mechanical problems, unreported accidents, or other problems. They write:
To reduce the inherent risk when financing old cars, the lender usually reserves the best car loan interest rate for new car buyers. Alliant Credit Union, for example, offers current auto loan rates from 1.99% per annum with a flat rate for new cars, but only 2.24% per annum for used cars as of January 12, 2017.
Of course, the numbers differ depending on the car and your credit, but this is useful information if you are looking to buy a new car or a new used car. For more details, navigate to their full publication at the link below.
New and Used Car Loan Interest Rates Explained | GOBankingRates