Used vs. New: How Car Loans Can Differ
If you plan on buying a vehicle in the near future, then you need to start thinking about your financing options. Car loans can be very complex, and the age of the car that you buy can have a major impact on your interest rate and premiums.
Here is a closer look at some of the variables that must be taken into consideration when looking at new and used car loans.
How Much Do They Vary?
Many people are surprised to hear that loans for used cars are generally more expensive than loans for new cars. Even if a new vehicle has the exact same sticker price as a used vehicle, you could end up paying thousands extra on the used car because of a higher interest rate.
When determining your total budget for a vehicle, you need to take a close look at how much the loan is going to cost you in the coming years.
Manufacturer Subsidies and Incentives
Car manufacturers will do everything in their power to sell new vehicles because most of the profits go right back to them.
After a new vehicle has been purchased, all of the subsequent sales will go to banks, used car dealerships, or private parties. That is one of the reasons why manufacturers work in tandem with lenders.
They offer competitive interest rates on newer vehicles to clear them off the lots. They might also offer huge refunds and bonuses to attract potential buyers to their newest lineup.
The Value of the Car
The actual value of the car is another important factor that the lender is going to examine. New car loans often have much better interest rates because they aren’t as big of a risk for lenders.
Studies have shown us that drivers who own older cars tend to get into more accidents and default at higher rates. Even though many people who own used cars are excellent drivers, research has shown us that lenders assume a much larger risk when a vehicle is older.
Lowering Your Premiums and Interest Rates
The most effective way to lower your interest rates is to keep your credit score as high as possible. Bumping your credit score by just a few points could end up saving you thousands in the long run.
You should also try to keep your driving record immaculate. Some lenders will take past accidents and tickets into consideration when they are looking at a new loan application.
In addition to your interest rates and premiums, you also need to think about ongoing maintenance costs and operating expenses. An older vehicle might have a smaller price tag, but maintaining used cars and trucks can be more expensive.
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Category: Debt
