You want to acquire a car as quickly as possible. Maybe you’ve already been to dealerships and decided on a specific make and model, or maybe it’s all up in the air, depending on what you’re approved for. What’s the sensible way to buy a car in this day and age, with so many new models on the market and competitive pricing on older cars?
Choosing a new car and a used car is a no-brainer for some. It comes down to what is best for the budget in other circumstances. Let’s consider the benefits and drawbacks of buying a new automobile against a used car, as well as how financing works for both.
Loans for New Cars vs. Loans for Used Cars
What about the funding procedure? When it comes to negotiating the terms of your agreement, there are definitely distinctions between new and used automobiles. Here’s a review of the advantages and disadvantages of financing a new automobile vs a used car.
Pros of a new car loan
The automobile business makes purchasing a new car appealing. Interest rates are frequently subvented, which means they are lower than the quoted bank rate, so you pay less interest over the life of the loan. It should be mentioned that to be authorized for such cheap interest rates; you usually need to have a high credit score.
Cons of a new car loan
The drawbacks of buying a new car — and getting a new car loan — are steep. First, the price you pay for the car is never an actual value. The dealer adds a markup to the MSRP, a term that describes the manufacturer’s suggested price for the vehicle. The dealer then adds finance charges and fees that push the price way past MSRP, sometimes doubling or even tripling the cost of the vehicle.
The depreciation roller coaster is another fact of life when you buy a new vehicle. As soon as your new car is driven off the lot, it loses a noticeable amount of value. You’re left with a depreciating asset that’s chock-full of new vehicle smells.
Pros of a used car loan
If you’re looking for a way to save money on your next vehicle, buying a used car is the way to go. With a pre-owned vehicle, the price you’ll pay is more in line with the quality of the car.
If you’re looking for a more affordable way to buy a car, you can likely lower your finance charges with a used vehicle. The interest rates on used car loans are often lower, and you don’t have to worry about the lender being compensated for a higher-than-average interest rate.
Cons of a used car loan
Always go via a trustworthy dealership if you opt to get a used auto loan. Avoid ‘buy here pay here’ lenders that do not report to credit bureaus, which means your monthly loan payments have no effect on your credit score.
Because some lenders do not provide subvented rates, you should always double-check the interest rate you’ve qualified for. It may make sense to be pre-approved for a vehicle loan before going to the dealership.
Buying a new car can be a costly investment. From the moment you drive it off the lot, the vehicle loses a significant amount of value. On top of that, you have to contend with expensive interest rates while the car continues to depreciate in value.
Used vehicles don’t have the same depreciation problem. They also tend to have a lower interest rate, saving you money. Used car loans are far more flexible, too. If you want to put down a small down payment or buy a car that’s not in pristine condition, you can likely negotiate terms that work for you.
If you are looking for reliable car financing, we can help you. Here at Get Approved Canada, we are your Canadian loan specialists from coast to coast. Contact our team today for your next auto, personal or mortgage loan!