Understand Car Loan Interest Rates
When you’re deciding between a new or used vehicle, price is only part of the equation. Auto loan interest rates are key factors in determining the total amount you pay for a new or used car purchase. Interest rates can have just as much—if not more—impact on the total cost of your auto loan. Many buyers focus on the sticker price and monthly payments, but the real story lies in the fine print of your financing terms. So what is the difference in loan interest rates between new and used cars—and how does that affect your long-term budget? Determining the best loan options for your situation is crucial to securing the most favorable terms.
At Crossroads Automotive Group, we’ve helped thousands of drivers across North Carolina and Virginia finance both new and used vehicles. Our experience shows that understanding how interest works is one of the fastest ways to save thousands over the life of a loan. The Federal Reserve plays a role in influencing auto loan interest rates, which can affect your loan options and loan offers. If you’ve ever asked, “Are interest rates lower on new cars?” or “Why are interest rates higher on used cars?”—you’re in the right place.
When discussing the difference in loan interest rates, it’s important to note that the loan amount and total amount paid are determined by the interest rate and loan terms you choose.
Why Are Interest Rates Higher on Used Cars?
Used cars generally come with higher interest rates. Why? Because lenders view them as riskier investments. A used vehicle has already been through some wear and tear. There’s also a greater chance of mechanical issues, and its value is lower from the get-go. If the car is older or has high mileage, those risks multiply. Lenders see a higher likelihood of default with used cars, especially for borrowers with lower credit scores or limited credit history.
To balance out this risk, lenders increase the interest rate on used car loans. In simple terms: the more uncertainty there is, the more it costs to borrow the money. Factors such as credit history, credit scores, and the perceived investment value of the vehicle all contribute to the higher interest rates on used car loans.
Are Interest Rates Lower on New Cars?
Yes, generally—and the difference can be significant. New vehicles often qualify for promotional financing rates, sometimes as low as 0% APR for well-qualified buyers. Borrowers with excellent credit often qualify for the lowest interest rates on a new vehicle. Even outside of promotional periods, new car loans usually come with lower average interest rates than used car loans.
New cars are a safer bet for lenders. They come with full manufacturer warranties, consistent values, and fewer expected maintenance issues. New vehicles also provide access to better warranties and the latest features, which further justify the lower interest rates offered by lenders. There’s less risk of default, which means more favorable terms for you as a borrower.
What Is the Difference in Loan Interest Rates Between New and Used Cars?
As of recent national averages, the difference between new vs. used car loan interest rates can range from 2% to 5%—sometimes more depending on your credit score. Let’s break it down.
- New Car Loan Average APR: 4%–6% (lower with good credit or dealer incentives)
- Used Car Loan Average APR: 6%–11% (depending heavily on age of vehicle and credit profile)
That difference adds up. Consider a $30,000 loan financed and repaid over a 60-month loan term.
- At 4% APR, your interest over the life of the loan is approximately $3,150
- At 8% APR, that interest jumps to $6,500+
The loan term directly affects both your monthly payment and the total interest repaid—longer loan terms may lower your monthly payments but result in higher total interest costs, while shorter terms mean higher monthly payments but less interest paid overall.
Generally speaking, car loan interest rates for used cars are higher due to increased risk and depreciation. The total amount financed and repaid depends on the car loan interest rate and the loan term you choose.
What It Means for Your Budget
Choosing between new vs. used car interest rates isn’t just about the initial approval—it’s about the full financial picture. Before making a decision, consider what you can truly afford, including not just the monthly payment but also all fees, the cost to insure the vehicle, and how the loan will affect your overall debt. Even if a used car has a lower sticker price, a higher APR could make it more expensive over time. On the other hand, a new car with strong financing terms might fit better into your long-term budget, even if it costs more up front.
TIP: Always ask to see both the monthly payment and the total cost of the loan. A lower monthly payment doesn’t always mean a better deal. Paying attention to all fees and making timely payments can help you save money over the life of the loan.
How to Get a Better Interest Rate—New or Used
No matter which direction you choose, there are ways to minimize interest and maximize value.
- Improve Your Credit Score: A better score opens the door to better rates.
- Shop Multiple Lenders: Don’t settle for the first offer—Crossroads Automotive Group works with a network of trusted lenders to find your best match. Compare loan rates and loan offers from many lenders, including banks and credit unions, to ensure you get the best deal and a good deal on your auto loan.
- Make a Larger Down Payment: More up front means you borrow less—and pay less in interest.
- Choose a Shorter Term: Shorter loan terms reduce overall interest paid, even if monthly payments are higher.
- Buy Certified Pre-Owned: CPO vehicles often qualify for better rates than traditional used cars.
The finance department at Crossroads Automotive Group can help consumers and car buyers access a wide range of loan options, including refinancing opportunities to secure a lower rate or get your loan refinanced for a better deal. Whether you are looking to borrow money for a new or used car, or considering refinancing to improve your terms, our team can guide you through comparing offers from banks, credit unions, and many lenders. Understanding your income and ability to borrow money responsibly is key to qualifying for the most favorable loan terms and paying less over time.
Let Interest Work in Your Favor
At Crossroads Automotive Group, we want you to make an informed decision that goes beyond the surface. Understanding the difference in new vs. used car interest rates isn’t just helpful—it’s essential. Whether you’re wondering, “Are interest rates lower on new cars?” or trying to figure out “Why are interest rates higher on used cars?”—the answer lies in the math, the risk, and the financing strategy behind the scenes.
Our finance specialists are here to help you weigh your options and find the deal that fits your goals. Visit any of our locations across North Carolina or Virginia and let us help you get behind the wheel with confidence—and a financing plan that truly works in your favor.
Ready to explore new or used options with smarter financing? Stop by a Crossroads Automotive Group location today and let’s turn knowledge into savings.
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