Get A Lower Interest Rate By Buying A Newer Car

24 April 2017
 Categories: Finance & Money, Blog

Shopping for a car can be an overwhelming experience, simply because there are so many options to choose from, and because you may need to get an auto loan to make the purchase. If you are looking for the best auto loan around, you might want to consider buying a new car instead of one that is older. Newer cars come with lower interest rates than older cars, and here are a few reasons for this.

Lower Risk

One reason lenders may offer better rates on new cars is because there is less risk that they will experience major problems that are costly to repair. New cars are not like this. New cars have new parts and theoretically should last longer. In addition, new cars often come with warranties.

If you buy an older car and the transmission goes out, you may not be able to afford to get it fixed. In this case, you would no longer be able to use the car, and this may cause you to stop making the payments on it. This is lenders view loans on older cars as riskier loans than those on newer cars.

Higher Resale Values

The second reason this principle exists is due to the difference in resale values between new and older cars. It's fairly easy to estimate how much a new car is worth, whereas the value of older cars can vary drastically. Newer cars are also worth so much more than older cars, and this factor is important to consider if a lender has to repossess the car they offer a loan on. Lenders have more uncertainties and issues with lower car values when offering loans on older cars, and this is one of the reasons interest rates are lower on new cars.

Shorten Your Term For An Even Better Rate

While the age of the car you buy will have a big effect on the interest rate you pay, there is one other thing to consider. If you can choose a shorter-term loan, it's likely you can save even more. Shorter-term loans typically do have lower rates, simply because you will be paying down the principle faster and because the lender is loaning the money for a shorter amount of time.

In general, interest rates are highly based on the age of a car, and older cars will always have the highest interest rates. If you want the lowest rate on your next auto loan, consider buying a newer car and shopping around for your auto loan.