Purchasing a car involves a buyer selecting a model based on several criteria, with price being a top one for many. One way to arrive at a cost-efficient purchase consists of buying a used car, although some consumers prefer to pay more for a new one. New models often come with the latest features and other perks, making them worth the added price.
Both new and used car shoppers may wish to finance their acquisition, and, surprisingly, there could be some differences between new and used car loans.
Some steps won’t likely change whether purchasing a new or used car with an auto loan. The buyer would seek approval from a lending institution on the remaining balance after making a down payment or trading in an older vehicle. If approved, the buyer/borrower would make monthly payments that include interest.
For example, if the buyer procures a low APR, the purchase price might be reasonable. However, those who make large down payments would save even more money since they pay interest in a smaller balance.
New vs. Used Car Interest Rates
Each APR offer may differ, but new car purchases will generally come with lower interest rates. However, a new car could be far more expensive and have a longer loan term than a used car. For example, a shopper might only finance a used car purchased for two or three years because they are paying $5,000 for the model instead of a new car purchase that may be $30,000, requiring the borrower to take out a six-year loan.
Refinancing the Original Loan
Sometimes, circumstances change, leading a buyer to look to save money on an existing car loan. Refinancing could serve this purpose. For example, typing figures into a car refinance calculator may reveal the money saved after procuring a better rate on a new loan. As Lantern Credit by SoFi reveals, “As a more qualified borrower, you may be able to get more favorable rates and terms on your refinanced car loan.”
Depreciation Plays a Role
Depreciation refers to the vehicle’s resale value after it ages and experiences increased mileage on the odometer. With the used car, much of the depreciation already occurred. Shoppers should realize a new car might suffer significant depreciation, making a loan potentially more expensive. However, the process mentioned above of refinancing the original loan might help an “upside-down” borrower.
Other Cost-Saving Points
Savvy consumers look for ways to save money on their vehicle purchases. They may pay close attention to competitive interest rates for initial purchases and refinancing. However, looking at any available deals or perks that bring down the price might not hurt. Cashback offers, for example, lower payoff amounts. However, such sales are much more common with new cars than used ones.
New car sales deals might come with low or zero APRs for an introductory period. Saving money on interest during the first 12 months could be helpful.
Financing offers help consumers purchase both new and used cars. No matter what type of vehicle a buyer selects, looking for less-costly financing may save them money.