Shopping for cars involves a lot of math and sometimes it can be difficult to add up. Have you ever noticed that new and used cars have different interest rates? Of course your credit comes into play but used cars typically have higher rates for good reasons. 

Why do new and used cars have different interest rates? 

Let’s say you have really good credit and you’re ready to check out some new cars. You might be quoted for a 1.5% APR on a new car but then 6.5% for a used option, even if they have a similar price. 

Used cars may have higher interest rates to protect lenders. Used vehicles could be more likely to break down. Remember to check a vehicle’s history before making a final decision. 

Also, you can have a mechanic look over a used option before making your final decision. Used cars might not have any type of warranty coverage left, meaning drivers are stuck with repair bills. 

Interest rates are also higher because they have shorter terms. Lenders might not offer their longest term, like up to 84 months or more. This means that lenders have to charge more to make a profit. 

Depending on the types of cars, SUVs, and trucks that people buy, the new models could be a lot more expensive than the used ones.

Lenders get to relax as more expensive cars have more expensive and longer loan terms. As a result, they don’t; have to charge as much interest. 

Plus, new cars are less likely to break down. This means that new vehicles are at lower risk. But because new cars have a lower interest rate, you may end up paying less in accumulation costs over time. 

CaptialOne did some math for me. If you have a used car loan for #0,000 with a 9.433% interest rate for 48 months then you’ll have $6,060 in interest. If you buy a new car for $40,000  with 6.88% interest for 48 months, you’ll have $5,869 in interest. 

Your credit score plays a huge role in securing a better interest rate with new and used cars. Compare your dealership finance option with private lenders to try and get better rates.