New Vs. Used Car Interest Rates

Interest is the price you pay to borrow money. Both new and used cars often cost too much for the average buyer to pay in a lump sum. Various sources provide the money and offer payback terms of anywhere from 24 to 72 months or longer, although CarsDirect warns that lengthy loans often leave you owing more than the vehicle is worth. Interest rates differ for new and used autos.

Comparison

New car interest rates are generally lower than the rates for used car loans, said Eric Evarts, a Cars.com writer. For example, DataTrac Corp. reported that the average 36-month new car loan from a bank was running nearly half a point lower than used car financing for the same term in January 2011. New cars sometimes qualify for promotional rates, which may run as low as zero percent. Evarts said that dealers do not run such specials for used cars.

Sources

Both new and used cars are financed through various sources, such as banks, credit unions and lenders found through the dealership. Credit unions are often the best source for low interest rates, said MSN Money columnist Liz Pulliam Weston. For example, credit union 48-month new car loan rates are about 1.5 percent lower than banks' rates, and used car financing is almost 2 percent cheaper. Dealerships tend to give the highest interest rates because they get wholesale quotes for loans, then mark up the money to make a profit for both new and used vehicle financing, Evart said.

Qualifications

Both new and used car interest rates are higher for buyers with past credit problems. Lenders offset some of their risk by charging more for the loan. You may have to accept more expensive financing if you have delinquencies, collection accounts, bankruptcy or other negatives on your credit reports, according to Edmunds.com in a story by Content Editor Warren Clarke. You can usually refinance your loan within a year or two at a more attractive rate if you rebuild good credit. Focus on on-time payments on the car loan and all your other bills, as the MyFICO credit scoring site identifies this as the most critical factor in restoring your score.

Considerations

Car research websites report on special new car financing deals, as well as other incentives like rebates and promotional dealer cash. Zero percent loans and other highly attractive deals usually require a very good credit score. You usually get an alternative incentive, like a rebate, if you do not qualify for the promotional finance rate.