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New Car Loans vs. Used Car Loans

Which is the better deal in terms of total cost - buying a new car or buying a used car? This may seem like a simple question, but in fact it is not. It is even harder to give a definite answer when the price of the used car is very close to the price of the new one.

Both investments have their advantages and disadvantages which, depending on the particular case, may make each the better deal.

Let's start with financing a new car purchase. There are some very nice benefits that are worth considering.

Buying a new car can be quite a pleasant experience; after all, the new car is all shiny and smells great.

Additionally, new car loan rates are often a bit lower. This difference is typically of 1-3% which is not much but still means that you are saving money from interest.

Furthermore, if you have perfect credit score, you may qualify for a 0% car loan offer. Such offers can be a great deal and are only valid on new cars.

This is where the major advantages end. The biggest disadvantage of new car loans is that your new car almost instantly becomes worth less than what you have paid for it. You drive your new car off the dealer's lot knowing that its value drops dramatically and due to this depreciation soon the auto loan you need to pay off will be more than the car's value.

How about financing a used car?

An increasing number of manufacturers are offering "certified pre-owned" cars to make money. Owners get forced to be price competitive in order to be able to get rid of their used cars. This is in favor of the used car buyers who can find pretty good deals.

Additionally, by buying a used car you avoid the significant depreciation even if the car is only a year old.

However, as we already mentioned, interest rates for used car loans are higher than those for new cars. Adding to that the great number of financing deals offered for buying a new car it may turn out that the new car is a better deal. This is especially true when the prices of the cars are close.

Therefore you should shop around to gather different car loan quotes and use online calculators to compare them in order to make the best decision for the particular case.

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