New vs Used Car Loans: Which Saves You More?

Interest Rate Differences: New vs Used Car Loans

Interest rates are often the first thing buyers compare, and they differ between new and used car loans. Generally, lenders offer lower interest rates on new car loans than on used car loans. Non-servicemembers saw similar differences: 4.7% for new and 8.7% for used.

Why the gap? Lenders consider used cars riskier because their value is harder to predict. Equifax notes that used cars don't depreciate as predictably as new cars, making it harder for lenders to recover their money if a borrower defaults. Additionally, used car buyers may have different credit profiles, though the rate difference persists even when comparing similar credit tiers.

• New car loans: average APR for super prime credit was 4.88% in Q3 2025 and 4.55% in Q1 2026, according to Experian data cited by Bankrate and NerdWallet.
• Used car loans: average APR for super prime credit was 7.43% in Q3 2025 and 6.30% in Q1 2026.
• For deep subprime borrowers (low credit scores), new car loans averaged 15.85% in Q3 2025 and 16.01% in Q1 2026; used car loans averaged 21.60% and 21.77%, respectively.

Sources: Consumer Financial Protection Bureau, Equifax, Bankrate, NerdWallet

Loan Term Options and Their Impact on Payments

Loan terms for new and used cars typically range from 36 to 72 months, though longer terms are available. The length of your loan directly affects your monthly payment and total interest paid. A longer term lowers your monthly payment but increases the total interest you pay over the life of the loan.

The CFPB provides a clear example: for a $20,000 loan at 4.75% APR, a 36-month term results in $1,498 in total interest, while a 72-month term results in $3,024 in total interest—more than double. Even though the monthly payment is lower with the longer term, the added interest can cost you thousands more.

Some financial experts recommend keeping auto loans to five years or less to avoid owing more than the vehicle is worth, especially for new cars that depreciate quickly. NerdWallet also suggests a maximum of 60 months for a car loan.

• Shorter terms (36–48 months) save on interest but require higher monthly payments.
• Longer terms (60–84 months) lower monthly payments but increase total interest.
• Match the loan term to how long you plan to keep the car and your budget.

Sources: Consumer Financial Protection Bureau, Bankrate, NerdWallet

Depreciation: A Hidden Cost of New Cars

Depreciation is the loss of a vehicle's value over time. New cars depreciate rapidly, especially in the first year. Equifax states that new cars generally depreciate about 20% in their first year. Used cars, on the other hand, experience dramatically lower depreciation rates because the steepest drop has already occurred.

This depreciation affects your loan. If you finance a new car with a small down payment, you may owe more than the car is worth—being 'upside down' on your loan—for several years. With a used car, the lower purchase price and slower depreciation reduce this risk.

• New cars: ~20% depreciation in the first year (general average).
• Used cars: slower depreciation, so the car's value is closer to the loan balance.
• A higher down payment can help you avoid negative equity.

Sources: Equifax

Warranty

New cars come with a full manufacturer warranty, covering many repairs for the first few years. This can save you from unexpected repair costs. Used cars, however, typically have no warranty or only a limited one, unless they are certified pre-owned, which may offer some coverage. Equifax notes that used cars typically have limited or no warranty coverage.

While new cars may have better warranty coverage, they may also come with higher insurance premiums and taxes. The CFPB points out that the total cost of a new car can be higher due to taxes and insurance. Used cars generally cost less to insure, which can offset some of the savings from a lower purchase price.

• New car: full manufacturer warranty.
• Used car: limited or no warranty; extended warranties may cost extra.
• Insurance: used cars generally cost less to insure than new cars.

Sources: Equifax, Consumer Financial Protection Bureau

Total Cost of Ownership: Beyond the Sticker Price

When comparing new vs used, look at the total cost of ownership, not just the monthly payment. This includes interest, depreciation, insurance, taxes, and maintenance. New cars have a higher purchase price and faster depreciation, but lower interest rates. Used cars have a lower purchase price and slower depreciation, but typically higher interest rates and potential repair costs.

The CFPB data from 2018–2022 shows that servicemembers financed an average of $39,000 for new vehicles and over $27,500 for used vehicles. Over the life of a loan, the difference in interest can be significant.

To compare, use a car loan calculator to see the total interest and payments for different loan amounts, APRs, and terms. Be sure to factor in insurance and maintenance estimates.

• New car: higher purchase price, higher insurance/taxes, lower interest rate, faster depreciation.
• Used car: lower purchase price, lower insurance/taxes, higher interest rate, slower depreciation.
• Consider repair costs—new cars are covered by warranty, while used cars may need unexpected repairs.

Sources: Consumer Financial Protection Bureau, Equifax

Scenarios: How to Compare Payments

To see which option saves you more, run the numbers with a car loan calculator. Here’s a step-by-step approach:

1. Determine the purchase price of the new and used cars you’re considering, including taxes and fees.

2. Estimate your down payment. A larger down payment reduces the amount you finance and may lower your interest rate.

3. Check current APRs for new and used car loans based on your credit score. Use the ranges from Experian data as a guide.

4. Choose a loan term that fits your budget—preferably 60 months or less to minimize total interest.

5. Use a loan payment calculator to estimate monthly payments and total interest for each option.

Compare the total costs, not just the monthly payment, and remember to include insurance and maintenance.

1. Choose the exact new and used car models you’re comparing.
2. Get a pre-approved loan offer from a lender or credit union for both new and used cars.
3. Use an online auto loan calculator to input the loan amount, APR, and term for each option.
4. Compare monthly payments, total interest, and total loan cost.
5. Add estimated annual insurance and maintenance costs to find the total yearly outlay.

Sources: Bankrate, NerdWallet

Side-by-Side Comparison: New vs Used Car Loans

The table below summarizes the key differences between new and used car loans based on data from Equifax and other sources.

Interest rates and other costs vary by lender, credit score, and market conditions, so use this as a general guide.

Sources: Equifax