Why Do New Car Auto Loans Have Better Interest Rates Than Used?

You may notice financing a car that is used always presents a higher interest rate on the auto loan than one that is new – there is one major reason that this occurs, it’s old. Basically, you are being charged less for an auto loan on a new vehicle because there is less of a liability for the dealership and less could go wrong. So fortunately, you can expect to pay lower rates on average for new cars.

In general, the rule of thumb when financing a car is the older the vehicle, the higher the interest rate. If you watch closely, you’ll find that lenders usually create package prices according to age groups. So if the vehicle is 1-3 years old, the rates will be higher than a brand new car. If it’s 3-5 years old, the rates will be even higher. And anything over 5 years usually has the highest rates.


If you’re looking to take out an auto loan on a used vehicle but are turned off by the used car rates, one way that you can try to beat the system is to think about financing a car online instead of with a bank. While an online entity will still charge more for the used vehicle, online rates are typically lower.

For example, currently, the average interest rate from a bank on a new vehicle is 7.00%, while on a used vehicle it is around 7.76%. You can find rates as low as 5.44% for a new vehicle and 6.34% for a used vehicle online. This means that by handling the process through an online financial institution, you can get your used vehicle at price lower than that of the new vehicle being financed through a bank. Also, keep in mind that if your used vehicle presents a higher level of borrowing (closer to that of a new vehicle), then the rates tend to lower considerably.

Taking out an auto loan doesn’t have to break your bank. If you take time to really shop around for a low auto loan rate, you’re likely to find what you’re looking for.