How to Get the Best Rate
A good rate on your used car loan can end up saving you lots of money over the life of the loan, and make it easier to fit a car payment into your budget. Here are a few things that will help:
- Know Your Credit Score
- Go for a Shorter Term Loan
- Put Some Money Down
- Find a Loan Advisor Who Can Help
Every lender is going to look at your credit history to help decide what rate you get. Bad credit car loans (and no credit car loans) are easier to come by these days than they were just a few years ago but if you don't know what the lender knows about your credit, you're leaving yourself open to higher rates.
Shorter term used auto loans usually have better interest rates, it's just that simple. You can use our car payment calculator to work out how much different the payments would be between different loan terms and decide if you can afford to go with something shorter to save money in the long run.
Money down on your used car purchase is a great signal to lenders that you are a responsible buyer, which gives them confidence that you'll make your payments. When lenders are confident, they offer better rates.
Finally, having a loan advisor who is willing to work on your behalf is a great benefit, and that's a great reason to apply with Carloan.com. We have a network of local loan advisors all across the U.S. experienced in helping people with all types of credit get loans for used cars. Each of them typically works with a number of different lenders, so they can look at your specific circumstances and find the lender with the best rates for you.
Why Are Used Car Loan Rates Higher than New Car Loan Rates?
In the world of car loans (and, really, any type of lending), the name of the game is risk management. This means that lenders have to do their best to make sure they don't lose money on the loans they make. One of the ways they do this is by adjusting interest rates based on how risky the loan is.
You might think that since new cars lose so much of their value as soon as they leave the car lot (around 20% on average) that lenders would see them as a risky investment. But even though the asset (that is, the car) depreciates quickly, people who buy new cars are less likely to default on their loan. People who finance used cars typically have lower credit scores, and they are more likely to default. So lenders manage that additional risk by charging more for the loans.
When lenders do have to repossess cars for non-payment, they have to sell them to recover the costs of the loan. In general, the costs of recovery are higher with used cars than with new cars, so this gets priced into the interest rate as well. Finally, it is easier for lenders to predict the depreciation on a new car. The older a car is, the more likely it is to have issues that will affect its resale price, like mechanical problems, high mileage, or cosmetic damage.