New and Used Car Loans: What’s the Difference?
When you are looking to buy a car, one of the first questions you ask yourself is whether you should buy a new or used car. If you are a first-time car owner, the possibility of owning a car soon can be very exciting. However, before you start running for your checkbook, there are a lot of things you need to figure out. Predominantly, you need to know whether you can afford the car, used or new, with the money you have.
When you decide to buy a car, you are not just shopping for a vehicle, but are looking to finance it well. Although it is nice to dream about paying cash for your car, the reality is that 53% of used car purchases and 85% of new car purchases are completed through auto financing.
According to the latest data, Americans owe $1.1 trillion in loan debt. The average loan amount for a new car was $31,099 with an average monthly payment of $515, while the average loan amount for a used car was $17,002 with an average monthly payment of $348.
This means that there is a big chance that you will need to resort to auto financing to buy your car. However, that doesn’t mean the news is all bad. Nowadays, independent auto dealerships can not only help you pick out your dream car, but also finance you in a way that is acceptable for you.
When you commit yourself to an auto financing contract, there are a few things that you will need to factor in, including your interest rates, monthly payments, and the total value of the vehicle. A quick comparison of new car auto loan vs. old car auto loans can help you decide which one works for you.
So, without further ado, let us look at their difference.
New Car vs. Used Cars
There is something infinitely cool about buying a brand-new car. However, do you know that new cars depreciate 10% of their value as soon as you drive away with them? Moreover, they will lose another 10% after just one year. This means your car’s value will have eroded by 20% in the first year! That’s why, if you don’t have limitless pockets but want to have a reasonably new car, most experts will tell you to buy a car that is at least one year old so that you don’t have to get stuck with the 20% depreciated cost. It will also let you buy a great car at a significantly reduced cost.
This means that if you like a car whose market value is $18,000, but choose to get the same model, but with pre-owned version from a used car dealership, you can usually save about $4000. With these cars, you can also get other perks that you get on new cars, like extended warranty and special financing offers.
Another great thing about buying a used car is that it does not lose much value between two or three years.
No matter which type of loan you opt for, both come with their advantages. The ultimate decision to buy either a new or used car will depend on how much budget you have.
Advantages of New Car Loans
There are some benefits that are particular to new car loans:
Lower Rates: Since the car is new, chances of it breaking down and other risks are low. Hence, lenders are willing to offer you lower interest rates and annual percentage that is lower than when what they offer for used vehicles. However, the financing terms are longer.
Special Rates: One of the biggest draw about buying new cars are low to zero APRs. These rates are not negotiable and can be offered to a customer if they have a great credit history and if they meet other criteria. However, customers should know that not everyone is eligible for these special rates and when there is no special financing, APR and interest rates are negotiable for both new and used cars.
Bonus: Most manufacturers often offer added incentives like money off a new car sticker price. However, both bonus cash and special rates are rarely offered together.
Sales Events: Car manufacturers also offer you a host of promotional discounted deals during special events. Holiday season from Black Friday through the New Year is a great time to buy a new car as they are often offered on discounted prices.
Advantages of Used Car Loans
Used car loans also come with their share of advantages:
Smaller Loan: The average prices of both new and used cars have risen through the years. Still, used cars cost thousands of dollars less than their brand-new counterparts. Since the price is lower, this means used car loan amount is smaller, which makes the car affordable to many. As mentioned above, the average loan amount for a used car was $17,002, as compared to the average loan amount for a new car, which was $31,099. That’s an almost $14,000 difference.
Slower Depreciation: Unlike new cars which depreciate 20% in the first year, used cars do not depreciate significantly in the first two or three months. Because of this, buying a used car can reduce the chance of you becoming upside down on a loan, where you run the risk of owning more than what’ your car is worth.
Shorter Loan Terms: Since used car are considered to be more risky than lenders, they usually have a higher APR and interest rate than brand-new cars. However, they also have a shorter loan term, which means you do not accrue as much interest over time as when you auto finance a new car. Additionally, you get debt-free quicker.
Accessible to Many Credit Types: Most new car loans are secured by customers who have a good credit score. Conversely, lenders welcome customers with all types of credit history for used car loans. This makes it accessible to all.
Using Auto Loan Calculators to Help you Decide
Whichever type of car you choose to buy, working out the budget first is essential. Fortunately, you can do this by using PA Auto Sales online payment calculator to estimate how much you can afford to pay. All you need is to add the vehicle price and the down payment and the calculator will give you a good estimate. If you want to tweak the payment, you also have the option of adjusting the interest rate and loan term within some limitations.
New or Used Car Loans: Which One Should You Consider?
Take control of your car-buying process by applying for pre-approval loans now. As an online auto dealership, PA Auto Sales allows car buyers to apply for financing in their own time and make an instant decision. If your loan is approved, you will know how much you will need to spend even before you decide to visit a dealership or go online to look for a car. When you know how much you can afford to spend on a car, it gives you more negotiating leverage.
If you are low on cash, getting an auto loan for a used car is a good choice in the long run. Not only will you have to pay a low amount of monthly cash, you will also be the owner of a car in a relatively shorter time.