New vs. Used Auto Loans: A Quick Comparison for Car Buyers

For most car buyers, securing an auto loan to purchase the vehicle is a necessary step in the process. If you are deciding between a new auto loan and a used auto loan, there are several factors to consider to ensure you make the best choice for your situation.

Take a look at the differences between new vs. used auto loans, including loan rates, approval criteria, loan terms, and approval limits. These features can help you decide which type of loan to apply for.

Used Auto Loans vs. New Auto Loans

A used auto loan is a type of auto financing provided specifically for buying a used car rather than a new model. Technically, a used car is any pre-owned vehicle. But, in terms of auto loan financing, a financial institution may specify a manufacture year or special criteria for new cars versus used cars.

A new auto loan is a type of vehicle financing for new cars. Most financial institutions regard new cars as being under two years old. This is likely due to the way that newer vehicles depreciate in value. After two years, new cars lose 20% to 30% of their original value.

New auto loans are different from used auto loans in that they generally afford more options in terms of loan amounts, term amounts, and interest rates.

When it comes to new and used auto loans, consider the loan’s basic facts, including rates, loan terms, and approval limits.


The rates on used auto loans can be pretty high. High-interest rates provide a buffer against financial risk for lenders, which is important when loaning funds for older vehicles. Used cars cost less than new cars, but they carry a higher risk of mechanical problems, show more wear and tear, and are generally a riskier investment. For these reasons, financial institutions set the APR for used auto loans as high as 6.12% in some cases.

Rates for new auto loans vary based mostly on consumer credit scores. New vehicles are generally less prone to the same issues as used cars. Therefore the most significant indicator of risk to lenders is your trustworthiness as a consumer. A good credit score suggests you are less of a risk, which influences your loan rate. The average rates for new auto loans range from 6.12% to as high as 17.66%.

Loan terms

Loan terms for used vehicles vary, with most loan terms set at between 36 months and 60 months. A longer loan term usually equals a smaller monthly loan payment. This is beneficial for people whose budgets don’t allow higher monthly payments. They can stretch out paying off their used car for three to five years, enabling them to purchase a vehicle with limited funds.

New auto loan terms offer more flexibility with payments. Many institutions offer loan terms of 60, 72, and 84 months. This allows you to adjust your budget to fit your loan terms. A five-year period lets you make higher payments to get rid of your debt quickly, whereas a seven-year term allows you to spread the payments out.

Approval limits

The lender you apply to has control of the financing amount you qualify for. Approval limits are affected by how much the car is worth, the size of the down payment you can afford upfront and your credit score. Your lender decides on exact approval amounts. However, you can apply for pre-approval to get an idea of how much you may qualify for before shopping for a used car.

Approval limits for new car loans are generally higher than for used car loans. This is because new cars cost more than pre-owned models. Your financial institution will take the cost and value of the vehicle into account, along with how much of a downpayment you can afford.

Approval criteria

Approval criteria for any type of auto loan, new or used, are subject to the lending institution’s requirements. Typically, approval criteria include meeting basic credit score requirements, submitting the required paperwork, and buying from a trustworthy dealer.

Additionally, the sticker price of the used vehicle should not be more than the car is worth. Because each lender’s approval criteria vary, it is best to speak with a loan representative for accurate information.

Trustworthy Financing

When seeking auto financing, it is crucial to work with a trustworthy lender. Predatory lending companies may seek to take advantage of people with poor credit, promising low monthly payments and high approval limits. Always check the NMLS Consumer Access database to ensure your lender is authorized to provide funding in your state.

In addition to predatory lending companies, dealer financing can pose a risk to your financial security. Dealerships make money off lending partnerships by receiving kickbacks. They also include outrageous hidden fees or renege on the agreed-upon terms. It is best to work with a reputable financial lending institution like T&I Credit Union to obtain auto financing.

New vs. Used Auto Loans

New and Used Auto Loans With T&I Credit Union

T&I Credit Union offers financing on both new and used vehicles. Our competitive rates and flexible loan terms give you choices in deciding on an auto loan that is right for you.

New auto loans start at:

  • 1.99% APR – 60-month term
  • 2.99% APR – 72-month term
  • 3.75% APR – 84-month termOur used car loans start at 2.99% APR for 60 months.

APR rates are based on your personal credit history. When applying for an auto loan, we pull your credit history. This allows us to review your personal loan, student loan, and credit card debt. Based on your payment history and debt-to-income ratio, T&I Credit Union decides on an appropriate APR for different loan terms and lets you know what you are approved for.

Generally, poor credit history and a low credit score yield a higher APR over the life of the loan. That’s why it is beneficial to take advantage of our free credit score analysis services which can help you raise your credit score by discovering areas for improvement.

If you would like to apply for pre-approval, follow our simple online application to determine your loan amount and predicted APR. The pre-approval process only requires a soft pull on your credit report.

Discuss Your Auto Loan Options With T&I Credit Union

If you are looking for auto financing for a new or used vehicle purchase, consider T&I Credit Union. We offer fix-rate auto loans at competitive interest rates so that you get the best deal on your new or used car. Once you apply, you’ll hear back within 24 to 72 hours about your loan approval status.

Contact us to discuss your vehicle financing options. Call (248) 588-6688 to speak to one of our loan representatives today.

About Lynn Mayfield

Lynn Mayfield studied business at the University of Kansas and enjoys analyzing new economic trends and how they affect the banking industry’s future. Lynn has worked in loan processing and freelance writing. She enjoys traveling in her free time.

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