Purchasing a new or used car can have an effect on the auto loan you decide to apply for. You’d think the type of vehicle should make no difference, but it does. So if you are trying to choose between a new or used vehicle and are unsure about how it can affect your rates, take a few minutes to review the actual effects both can have on your auto loan.
Loan Term Lengths are Different
Usually, when you apply for a new or used car, you have the option of choosing the loan term length you’d prefer. However, if you do your searching for an auto loan online, you’ll notice that there are usually fewer options for an older vehicle. For instance, you might see an option for financing a new car for up to 72 months. However, the likelihood of seeing this option for an used vehicle is slim.
Interest Rates Affected by Used/New Status
Believe it or not, when you purchase your vehicle used, you have to pay a higher interest rate. This is usually the case with financing a car through a bank or online institution. And while the online institution is most likely going to offer you a lower interest rate than a bank, you can bet that the used car rate will still be higher than that of a new car.
Private Party Loans are a Factor
Some people prefer financing a car by taking out an auto loan with a private seller. However, working with a private seller guarantees that you’ll be purchasing an older vehicle, even if it is only a year old. There are benefits, however, to going this route: you don’t have to worry about a down payment and the loan length is usually shorter.
Making your choice to apply for a new or used car loan can affect the terms of your auto loan. So if higher interest rates – or even the loan length – are important to you, you should consider buying a new car for a lower auto loan rate and longer repayment term.