New vs Used Car Loan Rates: Things to Keep in Mind
Do banks or buy here pay here dealers randomly decide the loan rate that they want to charge you? Do these financial institutions have any guidebook that says that they must charge a used car buyer a higher rate? In the capitalist market like the US, these decisions are taken by the market itself. And that brings about considerable differences when it comes to new and used car loan rates. Here are a few things that you must keep in mind regarding those deviations.
New car loans are cheaper, but they are rarely better
Going by the latest market rates, a bank will charge a 750+ credit score holder around 4.78% for his/her new car loan. That interest amount rises to 5.03% if the buyer decides to purchase a used car. Now, the difference may seem negligible but banks use this deviation to entice their customers to buy new. For, the average price of new cars is around $36,000 against the $20,000 for used cars. In short, the cheaper new car loan rate will not matter as the new price and hence, the net loan for you will be high and the banks will benefit from drawing the loan span. Despite the higher rate, used cars in Spartanburg makes more sense.
Options thin out if you have a bad credit score
Banks cease to entertain customers who have a credit score of under 600 and/or a poor financial record. Here, credit unions stand as options for new car buyers who charge around 7.11% for 600+ credit score holders and 18.77% for people with lower or bad credit scores. Anything below 450 and you will rarely find a lender for buying a new car. In the used market, however, buy here pay here used trucks and cars are available to all. Your credit score does not define your loan approval but the interest rate is in the24-32% range for 600-below credit score holders to offset the risk. Options are available in the used market where the new counterpart is fairly dry.
High-interest-low-span lead to savings
Often, financial experts advise against buying from lots selling used cars for sale in Spartanburg, SC with a bad credit score. The argument they place is that the high interest rates of 24-32% increase the APR and you end up paying way higher in the long run. But that is true if you drag the auto loan with bad credit to over 5-7 years. The best buy here pay here dealerships have 3-year plans that do not pull the APR up much and allow you to make savings irrespective of the high rate and bad credit score. You can rarely do this in the new car market. But with used cars, such financial options are wide open to bypass the high subprime used car loan rates.
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