Why Used Cars Usually Have Higher Interest Rates

Depending on your terms, the interest on your car loan can add up quite a bit. Your rate will depend on a few different factors, and whether the car is new or used is one of them. Rapid Finance explains why used cars typically have higher interest rates.

Part of the reason for higher rates is that consumers who buy used may have lower credit history, making them quality for higher rates. It's not just that, though. New cars usually come with better incentives, which gives dealers some room to offer better terms. Plus, used cars are harder to value.

New cars lose about 10% of their value when you drive them off the lot, according to Rapid Finances. It's more complicated with used cars, though. They may have mechanical issues, unreported accidents, or other problems.

To mitigate the inherent risk in financing older vehicles, a lender will usually reserve the best car loan interest rate for new car buyers.

Used cars will typically have a lower resale value, with cars on the road for 3 - 5 years (at least) declining in value even further. This means that the security of the car is worth less and as such the Lender can recover less should they be forced to repossess and resell the vehicle. Selling used and older cars comes at a risk for the seller, contributing to the higher loan interest rates.

Of course, the numbers vary depending on the vehicle and your credit history, but it's useful information if you're in the market for a new car or a new used car. For more detail, head to their full post at the link below.

Photo by Negative Space

[Rapid Finance]


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