Differences between Financing Used and New Cars
by Bruce Sheridan
When most people decide they need to buy their next car, they almost always ask themselves whether they should get a new or a used car. It's a tradeoff either way; it's just all about what aspects of the car deal are most important for you and your situation.
One of the biggest factors is what kind of cheap auto loan you get on your purchase. Most people choose used cars in this situation, thinking that it will automatically save them money, but they don't realize the financing is where you will really determine what you pay in the long run.
There are several key differences between financing new or used cars, regardless of their price. The financing on a $10000 new car will be different than that of a $10000 used car. However, for the most part financing low cost used cars is cheaper than new. Since there is less money involved, lenders need to make up the difference to still turn a profit.
The less expensive used car loan will usually be shorter in length and have higher interest rates. An average new car loan can be as long as five to six years, whereas used loans usually hover around three years.
Charging more interest on shorter loans allows the lender to make up the difference, but if you aren't careful you could get locked into an exceptionally high rate. You should always shop around and compare all the offers you get to make sure that what you are getting is actually best for you.
One benefit to getting used over new cars is that you probably will not be at risk of getting upside down in your loan. When you buy a new car, as soon as you drive away it loses a considerable amount of its initial value. If you don't put a big enough down payment down, you could owe more than the car is worth. This is called being upside down in your loan.
One of the biggest factors is what kind of cheap auto loan you get on your purchase. Most people choose used cars in this situation, thinking that it will automatically save them money, but they don't realize the financing is where you will really determine what you pay in the long run.
There are several key differences between financing new or used cars, regardless of their price. The financing on a $10000 new car will be different than that of a $10000 used car. However, for the most part financing low cost used cars is cheaper than new. Since there is less money involved, lenders need to make up the difference to still turn a profit.
The less expensive used car loan will usually be shorter in length and have higher interest rates. An average new car loan can be as long as five to six years, whereas used loans usually hover around three years.
Charging more interest on shorter loans allows the lender to make up the difference, but if you aren't careful you could get locked into an exceptionally high rate. You should always shop around and compare all the offers you get to make sure that what you are getting is actually best for you.
One benefit to getting used over new cars is that you probably will not be at risk of getting upside down in your loan. When you buy a new car, as soon as you drive away it loses a considerable amount of its initial value. If you don't put a big enough down payment down, you could owe more than the car is worth. This is called being upside down in your loan.
