Posted Monday, May 29, 2023
Millions of car buyers are stuck in the same ordeal every year: Should I buy a new or a used car? Remember, there are upsides and downsides to both decisions. But ultimately, it comes down to more than just the price. While buying a new car is a better choice for the long run, buying a used one will help you save money on the initial purchase. When it comes to auto financing, you shouldn’t only consider the price. You must also weigh safety features, depreciation, reliability, etc. So, how do financing options affect your ability to buy a new or a used car?
There are many types of auto loans available in the market. The most popular ones, nevertheless, are for brand-new and used vehicles. Here are the most common types of car loans you can consider:
In 2022, nearly 84% of new cars had financing. The figure was comparatively lower than the figure of 2020. Similarly, financing for used cars was also lower compared to 2020. Financing options play a critical role when it comes to deciding what type of car to buy.
So, why do some people choose new car loans overused ones? And vice versa? There are quite a few parameters that these loans differ on. Here are some of them.
When you opt for an auto loan to buy a used car, the interest rates may be slightly higher. This is because purchasing a used car is slightly riskier. Lenders may find it hard to value a used car accurately. On average, lenders offer 5.99% APR for a new car and 6.19% APR for a used car.
Generally, the approval for a new car loan takes a shorter time than the approval for a used car loan. For the latter, the lender may check the car thoroughly. It also depends on who you are purchasing the used car from.
Loan tenure is one of the most important factors in auto financing. You may get a longer tenure with a new car loan as compared to a used car loan. This is because a used car’s utility declines sharply. Furthermore, it has limited residual life. Hence, borrowers prefer loans with a short tenure for used cars.
LTV or Loan-To-Value ratio is the amount of loan given as a proportion of the car’s value. For a used car loan, the LTV is slightly lower. This is because there are more risks involved with buying a used car.
Ultimately, it comes down to finding the right lender. Finding the right lender also has to do with credit scores. Hence, borrowers must be disciplined with their loan repayment.
If you’re seeking used cars for sale, they may not cost as much as a new car. But new cars will have their own benefits. They won’t require a lot of maintenance. Furthermore, you can enjoy more security with them since they’re equipped with the most current features and technology.
Securing a loan for a new car may be slightly easier than securing a loan for a used car. New cars are in good condition, which is why determining their value is much easier. While an evaluation is still necessary, new cars are usually ready to go as-is.
You may have to do more research when finding a lender to give you a used car loan, but these cars are much easier on the pocket and also cost less to insure. That isn't it. When you buy a used car, you can also stay assured that their depreciation rates will be lower.
New cars depreciate 20% in just the first year. Used cars have already undergone their depreciation with the previous owner, so the oncoming depreciation will be much slower. This means you lose less of your investment when buying a used vehicle.
What’s better? Auto financing a used car or a new one? The reaction is determined by the following factors:
Do you want your car to have the latest features and technology? Or do you want to save more money with your initial investment? Do you want something that comes with slightly lower maintenance costs? Or something on a budget?
So, it comes down to personal preference and your current financial situation. New cars may offer more benefits in terms of maintenance costs, but used cars will help you save money initially.
Keywords: Auto financing, buy a used car, used cars for sale, auto loans
The bottom line is pre-owned or used vehicles may be your best bet only if there's a reliable dealer involved. At Ally Auto Group LLC, we are committed to providing you with the best car-buying experience.
As the best dealership for buying quality pre-owned vehicles in Texas, we also offer a range of financing options to make the entire process seamless and affordable for you. First and foremost, our team helps you choose the right auto financing option based on your needs, loan requirements, and credit history.
Assisting you with your car-buying needs is our ultimate priority, and we prove it by offering a fast loan approval process too. This means you can secure a loan and get your car as soon as you like!
Wish to seek more clarity on your options? Call us today and our staff is willing to assist you.