What Are The Key Reasons Of Having Different Interest Rates On Loans On New Versus Used Cars?

By Author: J.J. Yong
Total Articles: 963
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We all know that the interest rates are different between new and used cars, and they can never be the same, but do you have any idea why can't they be the same?

Fine, let us review together on some of the key reasons why used car tend to have a higher interest rates compared to a new vehicle.

a. A used car loan tends to have a higher default rates compared to those of new car.

b. The value of used car is difficult to be assessed compared to new car. Normally the value of a used car is estimated based on the age of the vehicle and the approximate standard market value of the used car based on its model and the vehicle 's history.

c. Less incentive is given for used car purchase. More people likes to buy new cars because they will be liable to get a lot of incentives from the sales dealer when they buy a new car, these incentives may be in the form of discounts on the vehicle selling price, or it may be of a lower interest rate. However all these incentives are not made available at all when you purchase a used car.

d. Only new cars are qualified for zero percent financing and not used cars. ...
... The rule of thumb is the older the car, the higher the interest rates. This is because of the high depreciation rate for the used car.

e. The rate will also be different between a secured loan and an unsecured loan. The latter will come with a higher interest rate for this type of loan will cover for the car insurance as well as for any offset of money which you need to top up with should you trade in your car one day and found that it is in upside down situation.

f. No history of possible accidents or damage for a new car. One of the key reason why people is less skeptical when it comes to new car purchase is because they do not have to worry about any undisclosed accidents or problems which the particular car may have. Instead for a used car, the owners may choose to hide the real underlying issues or problems of that vehicle. Because of this reason, as a rule of thumb, used car is normally attached to higher interest rate as compared to a new car.
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