Is the interest on a used car loan always higher than on a new car loan?
"I'm debating whether to finance a new or a used car. I've noticed that anywhere I shop, the lender offers a higher rate for used cars than for new ones.
Is this a common practice?"
Answer provided by
Answered on May 28, 2021
“The idea is relatively simple. The lender never sees the car and doesn’t do any mechanical checks on it.
A used car might have mechanical defects—plus the car’s already taken a hit on depreciation. To counteract the risk, lenders typically offer a higher interest rate.
For a new car, they know that the vehicle is in mint condition. There’s little risk of mechanical failure, making their collateral (the vehicle) worth more. Therefore, lenders can offer a lower rate.”
Did this answer help you?
Ask us a question by email and we will respond within a few days.
Have a different question?
You can meet us at our office and discuss the details of your question.
Browse by topics
What others are asking
Do I need an umbrella policy if I don't have a vehicle or insurance, but I rent cars frequently for day/weekend trips out of San Francisco?
My partner and I go on frequent trips using rental cars. Since we don't have a car, we don't have car insurance. However, I was trying to figure out a way to cover us both with an umbrella policy on top of liability. Do you think I need this?
May 04, 2021
How can I build an insurance history if I don't own a car?
I waited a long time to get my license, I'm 27, and I'm still saving up for my first car. I have never been on an insurance policy, aside from the few times I rented a car. How can I build an insurance history and save for a car at the same time?
May 06, 2021