If you’re interested in auto financing, but confused about how new and used vehicle loans work, here’s what you should know.
Whenever you’re making a vehicle purchase, the stress of deciding between financing a new or used car is one of the toughest parts of the buying process. If you’ve been car shopping recently, you’ve probably noticed the difference in pricing for used and new vehicles in terms of insurance costs, interest rates and monthly payments. If you’re interested in auto financing, but confused about how new and used vehicle loans work, here’s what you should know:
New Car Loans
One of the most notable benefits of financing a new vehicle is the lowered interest rates that they generally have. New cars are typically a lot pricier than used, so it’s common for these loans to have cash rebates or no money down financing options. Additionally, newer models usually come with a fixed warranty. Given these factors, it’s no doubt that buying new car could save you thousands of dollars. However, the costliness of a brand-new vehicle means that insurance rates, taxes and added fees tend to be higher in price.
From wear and tear to ageing, new cars experience the greatest loss of market value within the first year of being driven – approximately a 15 per cent drop. Depreciation on a vehicle tends to slow after the first few years of its lifespan, so if you’re interested in trading in your new vehicle, you’ll be more likely to get higher credit for the purchase if you hold off for a couple of years.
Used Car Loans
Although some people tend to put down the idea of buying used vehicles, there are benefits of financing a used car. The insurance rates on used cars are a lot lower, and they typically have minimal registration fees, which could help a person save over 30 per cent of the money that they would have spent on financing a new car. Due to the reduced cost of used cars, loans are smaller, however the interest rates can be a lot higher. From the lenders perspective, the value of a used automobile could go below the value of the loan before it’s fully paid off, and if a person defaulted on their payments, the dealership would have to make up the cost. To make the loan less dangerous for the lender, a lot of the times, a higher interest rate is given to people who choose to finance a used car. Although the interest rates may be high, getting financing for a used car can save you a ton of money in the long haul.
Whether you choose to finance a new or used car, it’s important to thoroughly look at the terms of the loan to help you determine the most logical option, and what will make the most financial sense, for you. If you’re still stuck between the two, we suggest doing some research on certified pre-owned cars – a great option that balances both the financing and value of new and used cars.
If you’re interested in auto financing and want to see what you’d qualify for, fill out our free and quick online application and we’ll get in touch with you about your approval options. Click here to apply.