There are pros and cons to buying both new and used cars. Which is best for you largely depends upon your individual circumstances. However, if you need to take out a loan to finance your purchase, there are a few differences with new vs. used car loans of which you should be aware.
Let’s take a look.
New Car Loans
Right off the top, you’ll get a lower interest rate with a new car loan—assuming your credit score rates one. On the other hand, because you’re probably going to be financing more money (new cars can be more expensive) you’ll likely be looking at a longer loan term with a new car loan.
With that said, manufacturers can come up with some pretty enticing deals to move that metal off of their dealer’s lots and into your driveway. You’ll even find zero-percent loans, particularly on less than hot models. (Again though, you’ll have to have a very strong credit score to qualify for these arrangements.)
Another advantage of going the new car route is the special year-end deals you’ll find when dealers get anxious to clear out last year’s products to make way for this year’s.
Used Car Loans
While you’ll be looking at a higher interest rate with a used car loan, you’re usually dealing with a lower price point and a shorter loan period. So, while that used car loan might look costlier at first glance, it usually works out to be less money overall.
Getting a used car loan, like those offered by RoadLoans, is usually easier than financing a new car too. While your credit score does still matter, these lenders tend to be a bit more forgiving than those focusing on the new car marketplace.
Another factor to consider is the overall value of the car once the loan is repaid. Given a used car will have already taken the depreciation hit when you get it, the value of the car will usually be higher when you make that last car payment (if you finance it carefully).
Here’s How to Decide
Before you go shopping for car—either used or new—take some time to list out all of your monthly expenses and total them up. Compare the sum to your total household income and see how much room you have to add a car to the list.
Keep in mind you’ll need to pay for fuel, maintenance, insurance, and registration as well. You’ll find a number of good calculators online to help you reach the best decision in this regard.
Get Pre-Qualified
If the numbers pencil out in favor of getting a car, congratulations!
The next move you should make is to get pre-qualified for the loan amount you’ve determined you can comfortably afford. This gives you a hard budget within which to work to help you avoid overspending when you see the car you’d love to have that’s just a couple thousand more than you wanted to spend—and yes, it’s going to happen.
It also gives you the ability to negotiate more favorable loan terms when they’re presented at the dealership—whether you buy a new or a used car. With a loan offer in hand, you can give the dealer an opportunity to come up with a financing package with better parameters (a lower interest rate and lower monthly payments). Just make sure all of the other parameters are the same in terms of the length of the loan and the amount of the down payment.
Ultimately, the difference between new vs. used car loans really comes down to whether a new car or a used car makes more sense for your given set of circumstances. Taking your time and considering things carefully—before you go shopping— will help you make the best decision.