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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?"
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“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.”
View full answer
- Gregory R.
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