Choosing Between New and Used Car Loans: What’s Right for You?

If you’re gearing up to buy a car, you’re likely mulling over the decision of whether to go for a brand-new vehicle or a pre-owned one. Each has its perks and pitfalls, and often, the right choice hinges on your budget. Let’s delve into the pros and cons of both options and how financing factors into the equation.

Comparing New Car Loans with Used Car Loans

When it comes to financing, there are notable distinctions between new and used cars. Let’s break down the advantages and drawbacks of securing a loan for a new car versus a pre-owned one.

Pros of a New Car Loan

Getting a new car comes with tempting incentives. Interest rates are usually subvented, meaning they’re lower than standard bank rates, resulting in less interest paid over the loan term. It’s important to note that securing these low rates typically requires a solid credit score.

Cons of a New Car Loan

Yet, diving into new car financing can have its pitfalls. It often takes a couple of years of payments for buyers to reach a point of positive equity in their loan. Being ‘upside-down’ in your car, where you owe more than your car’s current value, is a risky situation, especially if you can’t make a substantial down payment.

Pros of a Used Car Loan

Nowadays, certified pre-owned cars qualify for special financing rates from certain manufacturers. This makes buying a used car even more affordable than a new one. Even if you don’t qualify for the lowest rate due to credit issues, the lower initial purchase price still makes buying a used car loan very reasonable. Plus, used car loan terms can be as long as those for new cars – up to 84 months or more.

Because depreciation has slowed, used car buyers often find themselves in a positive equity situation sooner compared to buyers of new cars. And if safeguarding against unexpected expenses like car repairs matters to you, extended warranties are available and can be tailored to your needs, typically included in most used car loans.

Cons of a Used Car Loan

If you opt for a used car loan, always go through a reputable dealership. Avoid ‘buy here, pay here’ lenders that don’t report to credit bureaus, which means your credit score won’t benefit from your monthly payments.

Can I Finance an Older Car?

While an older car might seem appealing, securing a loan for one can be tricky. For lenders, older cars pose more risk. They might not hold up as well, and a major breakdown could lead to a financial loss for the lender.

In Conclusion

While owning a shiny new car is enticing, statistics show that 60% of car buyers opt for pre-owned vehicles for a reason: it’s more budget-friendly. Used car loans are an excellent way to build credit, shielding you from an upside-down situation and leaving more money in your pocket.

Get Pre-Approved for Your Car Loan Today!

With a pre-approval, you can shop confidently, knowing exactly what you can afford. Even if you have a less-than-ideal credit score, Auto Approvers can help you get pre-approved for a car loan today.