Used Car v. New Car Loan Rates

Back in the day, used car prices were considered cheap; new cars were expensive. For decades, the interest rate on a used car was about the same as a new car, so the math was easy: used cars were cheaper to own, overall. Things are different today.

When a new car is less expensive than a used car

Here is the truth about used car versus new car loan rates. First of all, used car prices are not that cheap anymore. Because of the poor economy, the demand for used cars is sky-high, driving up prices to near-record highs. The other change that has occurred in the marketplace is that there is now a wide gap between the interest rate on a used car loan and the rate on a new car loan. Many dealerships and their credit arms are in a position to offer 0 percent interest, a rate that is just not available for a used car.

As an example, imagine that you want to buy a year-old sedan in great condition. if you choose to take out a $20,000 loan with a 4 percent interest rate for five years, the interest alone will be almost $2,100. Alternatively, imagine that you could have a brand-new sedan with 0 percent financing. Comparing the cars head to head, the used sedan would need to cost at least $2,100 less in order for it to be a better bargain. It may seem counterintuitive, but in this economy, your decision to buy a new car is actually the wiser one.