How To Distinguish Used Car Loan From New Car Loan?
Most of the prospective car buyers want to know about the thin line of distinction between new and used car loan. It is because they get confused about both type of loans and need someone to tell them the difference between them. The main point of difference is that new car loan has low interest rate. It seems to be an advantageous point for poor or bad credit scorers as a rise in interest rate can make used car loan unaffordable to them. However, normal credit scorers don’t feel like affected with the slight variance in interest rate of car loan. Every auto loan seeker should therefore be vigilant while shopping around for car loans and make sure that they choose for the one that fits best into their requirement.
As compared to used car loan, the new car loan is large and expensive but its interest rate is much less. The borrowers are more likely to get facilities such as no money down financing or cash discounts with new auto loans as a promotional trick from automotive dealers who want to sell their cars fast. When you apply for car loan, it will definitely add to the price of the chosen car as you will have to pay for the monthly installment until the entire amount is paid off. But they would certainly help people to own car who don’t afford cash for purchasing either a used or new car.
Though used car loan is less expensive and small in amount but still some risk is being associated with it. Due to nonpayment of the earlier car loans, the lenders don’t want to approve it without charging a high interest rate. Again, their interest goes on increasing in two, four and six years of time or any possible increment method. The lending institution is rather concerned about the value of the car which may well go down the loan amount before it is paid off fully. Since they don’t want a borrower to default the amount causing problem in recovery for them, they prefer to make it a safe recovery by charging high rate of interest.
In used car loan, borrowers will either have to agree for a high interest rate or pay for more down payment. They don’t also get financing for cars more than 10 years old as most of the lenders reserve their preference in this matter. They think it very risky to sanction used car loan for vehicles above 10 years old. When the borrowers bargain hard to get their car price reduced by a substantial amount from the MSRP or Blue Book then they might face problem at lender’s side no matter whether they are applying for new car loan or used car loan.
Finally, purchasing used cars not only cost less than new cars but also can give you good return. In case the new cars are not maintained properly their value depreciates fast but used cars in perfect condition and having warranty coverage are an exception. If they are offered under manufacture supported programs then borrowers get the dual benefit of manufacturer’s assurance and along with the warranty coverage. It will work in the interest of borrowers if they go through the terms and conditions of car loan and calculate its duration and compare it against the value of the chosen car to decide its affordability.
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