New vs. Used Car Loan Rates: Which Costs Less in the Long Run?

Introduction: Two ways to finance a car

When you finance a vehicle, one of the first decisions is whether to buy new or used. That choice affects not only the sticker price, but also the interest rate you’ll pay, the amount you finance, and the long-term expenses beyond the loan. Lenders generally offer lower interest rates on new car loans than on used car loans, but new cars also cost more and depreciate faster. To make a smart choice, compare more than the monthly payment—look at the total cost of ownership.

This guide walks through typical rate ranges, the impact of depreciation, warranty differences, and examples that illustrate how a used car can sometimes cost less overall even with a higher interest rate.

Sources: Consumer Financial Protection Bureau, Equifax, Serpentini Auto Group

Typical rate ranges for new and used loans

Interest rates on car loans vary by credit score, loan term, vehicle age, and lender. However, industry data consistently shows that used car loans carry higher rates. For example, in Q2 2025 the average auto loan interest rate was 6.80% for new cars and 11.54% for used cars, according to Experian data cited by Bankrate.

A credit union guide suggests that used car loans typically have interest rates about 1 to 3 percentage points higher than new car loans. In 2026, a typical APR range for new cars is 4.5%–7.5%, while used cars are often 6%–10%—though rates outside these ranges are common depending on credit and market conditions.

Sources: Bankrate, Broadview Federal Credit Union, Serpentini Auto Group

Why used car rates are higher

Lenders see used cars as riskier collateral because they are worth less and more likely to depreciate further. Used cars also have less remaining useful life, which can affect the loan term and resale value. The CFPB has documented that consumers buying new vehicles pay lower rates compared to those buying used vehicles.

Vehicle age and mileage can push rates even higher. Lenders may add 0.5 to 2 percentage points for cars older than five years or with high mileage. On the other hand, certified pre-owned (CPO) vehicles sometimes get lower rates than standard used cars, because the manufacturer warranty reduces risk.

Your credit score plays a major role: borrowers with lower credit scores pay higher interest rates for both new and used car loans.

Sources: Consumer Financial Protection Bureau, Equifax, Broadview Federal Credit Union, Serpentini Auto Group, Bankrate

Depreciation: the hidden cost of new cars

New cars lose value quickly. Industry sources say a new car loses approximately 20-30% of its value within the first two to three years, and about 20% in the first year alone. That rapid depreciation means you may owe more on the loan than the car is worth—a situation called negative equity—if you finance a large portion of the purchase price.

Used cars have already absorbed the steepest depreciation, so they tend to lose value more slowly. This reduces the chance of being upside-down on the loan and can make a used car cheaper to own over time, even if the interest rate is higher.

Sources: CarEdge, Equifax, Hudson River Community Credit Union

Warranty

The warranty is another major difference. New cars typically come with a full manufacturer warranty, which can cover repairs for several years or a certain mileage. Used cars often have limited or no warranty coverage, so you may face out-of-pocket repair costs if something breaks.

Sources: CarEdge, Equifax, Serpentini Auto Group

Long-term cost comparison examples

To see how these factors interact, consider two examples from industry sources.

In one scenario, a $37,550 new RAV4 financed at 4.99% for 60 months would cost about $7,000 more over five years than a $27,000 used 2023 RAV4 financed at 10.5%, assuming top-tier credit for the new car rate. The used car carries higher maintenance risk and less warranty coverage, but the lower purchase price and slower depreciation offset the higher interest.

Another illustration shows a $30,000 used car loan at 9.33% for 48 months generating $6,060 in interest, which is actually more than the $5,869 interest on a $40,000 new car loan at 6.88% for 48 months. Even though the used car has a lower sticker price, the higher rate can make the total interest cost higher. However, the overall cost of the used car may still be lower because the principal is smaller.

The takeaway: a used car can be cheaper overall than a new car even with a higher interest rate, because the lower purchase price and reduced depreciation offset the additional interest. But your exact situation depends on the prices, rates, and terms you qualify for.

Sources: CarEdge, Capital One, Hudson River Community Credit Union

Factors that can lower your rate for either choice

Several steps can help you get a better interest rate on any car loan, whether new or used:

Improve your credit score before applying, since lower credit tiers pay higher rates.

Make a larger down payment—aim for 20% or more—which can signal lower risk to lenders.

Choose a shorter loan term; longer terms often come with higher rates and more total interest.

Shop around and compare offers from different lenders, using the APR, which includes fees, to compare costs.

For new cars, look for manufacturer promotional financing such as 0% APR for qualified buyers. For used cars, consider certified pre-owned vehicles, which may qualify for lower rates than regular used cars.

• Improve your credit score
• Make a larger down payment
• Choose a shorter loan term
• Compare offers using APR
• Look for manufacturer incentives on new cars
• Consider certified pre-owned for lower used-car rates

Sources: Bankrate, Equifax, Consumer Financial Protection Bureau, Broadview Federal Credit Union, CarEdge, Serpentini Auto Group

Side-by-side comparison and decision criteria

The table below summarizes key differences between new and used car loans. Use it as a starting point when weighing your options.

A new car loan typically offers a lower interest rate, full warranty, and higher insurance costs, but the car loses value quickly. A used car loan has a higher rate, limited warranty, and lower insurance, but the car’s value holds better. Your decision should consider your budget, how long you plan to keep the car, and your tolerance for potential repair costs.

Sources: Serpentini Auto Group, CarEdge, Equifax, Hudson River Community Credit Union, Consumer Financial Protection Bureau

Making the final decision

To decide between a new and used car, run the numbers for your specific situation. Compare the total cost of ownership, not just the monthly payment. Consider the purchase price, interest costs, depreciation, insurance, warranty, and potential maintenance over the years you plan to own the car.

If you have strong credit and can qualify for a low promotional rate on a new car, the lower interest and warranty might make it appealing despite higher depreciation. If you prefer a lower monthly payment and can handle the risk of repairs, a used car—especially a certified pre-owned model—can be a cost-effective choice. Always get personalized rate quotes and compare APRs from multiple lenders before committing.

Sources: Capital One, Hudson River Community Credit Union, Consumer Financial Protection Bureau, Serpentini Auto Group