June 20, 2021

What is the interest rate for used cars – All you need to know about financing

Nowadays life is unimaginable without a car. Private cars became the main source of transportation for a broad mass of people. I won’t mention how comfortable it is to own a vehicle, as it’s clear for anyone that ever had a car. If you don’t have an automobile, I’m sure you plan to get one. To be honest, choosing and buying an automobile isn’t too easy. First of all, you should choose the right model for you, meeting all your requirements, and then find the source of financing. If you can’t pay by cash, you should clarify many details related to the issue. 

Below we’ll discuss all important topics related to financing. We’ll clarify what is the interest rate on used cars compared to new ones. Compare Auto Finance Company and Bank interest rates and advise what you can do for getting the best deal! Does it sound interesting? Let’s start exploring!

What is the interest rate on used cars compared to new ones?

Nonetheless of our strong will to buy a car by cash, sometimes we are limited on budget and have to find financing sources. Of course, we all want to avoid paying additional money for the car, in the form of an interest rate, but sometimes getting a loan isn’t too unprofitable. By getting a loan we can make our dreams come true and get the vehicle much sooner than we could by collecting all the money. In order to avoid overpayment, you should have as many details as possible.  

Before clarifying what is the going interest rate on used cars let’s review some details to make the whole process clear. Before applying for the loan you should know that each loan requires interest rate payment. The interest rate may differ upon different conditions. First of all, the main thing that determines the interest rate value is the credit score. Each person has an individual credit score, which is determined by previous experience of getting and covering loans. A person that has a good financial history, means that he/she always covered monthly payments on time and doesn’t have any current obligations. The individual with such a credit history has a higher chance to get a lower interest rate on the loan. 

As we’ve mentioned, the first thing that determines the interest rate value is the credit score. Another important thing which you should take into account is the car condition. The interest rate can differ for two persons with the same credit score if one of them buys a used vehicle and another new one. Now you know two of the most important reasons that may affect the interest rate.

To answer the topic, what are interest rates on used cars compared to new ones, the third and important thing is the period of the loan. It can affect the rate value as well. As a rule, the average interest rates for used cars are much higher than for loans on new models. Many banks even won’t approve loans for used cars over 8 or 10 years. The reason is that older, used vehicles are perceived as less reliable. Loans for newer cars are lower due to less of a risk. There is a small chance that new automobiles will break down. Besides, lenders can foresee the depreciation rate, and overall new cars are more predictable compared to used ones. 

To see the difference clearly between what is the interest rate for used cars vs new ones, let’s say that an individuals’ credit score is between 501–600 range. In that case, his/her average Annual Percentage Rate (APR) for the new car will be 11,33% and for the used one – 17,78%. I guess the difference is remarkable, but of course, it may differ upon the coverage period of the loan. 

So, to sum up, three main things affect the interest rate of the loan:

  • Credit score
  • Car condition (used or new)
  • Covered period

What is the going interest rate on used cars – Auto Finance Company vs Bank

As you have seen there are several factors that affect what is the finance rate for used cars. Another important thing that you should take into account is the source of the financing. Unsurprisingly loan terms and interest rates may vary completely in different sources, such as national banks, online lenders, auto finance companies, and local credit unions. 

According to Federal Reserve if we review previous years’ statistical data, the average annual percentage rate has always been lower at auto finance companies, compared to banks. For instance, the average loan interest rate in auto finance companies was 5% and in banks – 7% in 2010. The reason is that big automobile brands also offer financing to their consumers. For instance, Ford Finance, GM Financial, and many others. Those finance companies provide loans for purchasing an automobile, produced by the parent company. That enables them to approve loans at a lower rate. 

So, since we know what is the interest rate on used cars between auto finance companies and banks, we can move on to the last topic and share some tips that help you to get the best deal!

How to get the best deal out of what are interest rates on used cars?

As you have already seen, there are many different factors that affect what is the going interest rate on used cars. Below I’ll share some important details that help you to get a loan with the best interest rate. 

  1. As you already know, your credit rate plays a significant role in determining the interest rate. First of all, at AnnualCreditReport you can check your credit rate online. The credit score range is between 300-850. Below you can find how the rate is perceived. Upon the given information you can roughly calculate the average interest rate and decide, whether purchasing the car with the loan term works for you or not. If your credit score is good or excellent, you can skip the second step and move on directly to the third one. 
  • 300-629 – Bad
  • 630-689 – Fair
  • 690-719 – Good
  • 720-850 – Excellent 
  1. Did you know that you could impact on what are interest rates on used cars? Yes, you can do it by improving your credit score. There are several ways for improvement.
  • Pay down as much debt as possible;
  • Avoid opening and using new credit cards;
  • Think about a co-signer, with a high credit score. 
  1. And last but not least, search as much as possible! Before making a decision try to clarify interest rate details at least in three different sources. Only after comparing and analyzing those details, you can make the final decision. 

Conclusion  

All in all, nonetheless above-mentioned information might seem a bit overwhelming, hopefully, you found it interesting. We’ve covered all the important topics related to what is the interest rate for used cars. I guess now you have a broader view about financing and will get the best deal upon following all the mentioned steps. Wish you good luck!