Auto loans for new cars typically come with lower interest rates than loans for used cars, since new vehicles are considered lower risk collateral and often qualify for manufacturer incentive financing. Used car loans usually carry higher rates and sometimes shorter maximum terms, since the vehicle’s value depreciates faster and lenders price in more uncertainty around its condition. That said, a used car’s lower purchase price can still result in a smaller overall loan and lower total interest paid, even at a higher rate. You can compare both scenarios directly using our auto loan calculator.
Before deciding between new and used, it’s worth calculating the total cost of each option rather than just comparing monthly payments, since a lower rate on a more expensive new car doesn’t always beat a higher rate on a cheaper used one. Understanding the difference between APR and interest rate is especially useful here, covered in auto loan APR vs. interest rate, since used car offers are more likely to include added fees that inflate the effective cost beyond the advertised rate.