Used car loan rates are typically higher than new car rates, usually by 1 to 3 percentage points, because the vehicle depreciates faster and lenders see more risk
When you borrow money to buy a used car, the interest rate you receive depends on your credit score, the age and mileage of the vehicle, how much you're putting down, and the length of your loan. A lender views a used car as a weaker may provide than a new one — the car has already lost value, it may have hidden damage, and it won't last as long. That's why the same person might get 4% on a new car loan but 6% or 7% on a used car loan from the same bank.
The rate also shifts based on what's happening in the broader economy. When the Federal Reserve raises its benchmark interest rate, all consumer loan rates climb. When it cuts rates, lenders lower theirs too. But the gap between used and new car rates stays fairly consistent — lenders always charge more for used vehicles because the risk profile doesn't change.
Key Takeaways
- Used car loan rates run 1 to 3 percentage points higher than new car rates because the vehicle loses value faster and carries more mechanical uncertainty.
- Your credit score is the single biggest factor in the rate you receive — borrowers with scores above 740 typically see rates 2 to 4 points lower than those below 620.
- The age of the vehicle matters: a 3-year-old car usually qualifies for a lower rate than a 10-year-old one, because newer used cars are less likely to need major repairs.
- Banks, credit unions, and online lenders all offer used car loans, and rates vary between them — shopping at least three places before you buy can save you hundreds of dollars over the life of the loan.
- A larger down payment lowers your rate because you're borrowing less and the lender's risk shrinks.
How your credit score affects the rate you pay
Your credit score is the number lenders look at first. It reflects your history of paying bills on time, how much debt you already carry, and how long you've had credit accounts open. The higher your score, the lower the rate you'll receive.
A borrower with a credit score of 750 or above might receive a used car loan at 5%, while a borrower with a score of 650 might see 8% or 9% for the same car and loan amount. The difference compounds over time. On a $20,000 loan over 60 months, that 3-point gap costs roughly $3,000 more in interest.
If your score is below 620, many traditional lenders won't offer you a used car loan at all, or they'll require a co-signer. Credit unions sometimes work with lower scores than banks do, and some online lenders specialize in subprime auto loans — but those rates can reach 15% or higher. Before you shop for a car, check your credit report for errors and dispute anything that's wrong. Even small improvements to your score can lower your rate.
Why the age and mileage of the vehicle matter
Lenders care about how old the car is and how many miles it has because both predict how likely the vehicle is to need expensive repairs. A 3-year-old car with 40,000 miles is a safer bet than a 10-year-old car with 120,000 miles. The newer, lower-mileage vehicle will hold its value better if you default and the lender has to repossess and sell it.
Most lenders won't finance a used car that's older than 10 years, regardless of mileage. Some set the cutoff at 8 years. A few will go older if the mileage is very low, but the rate will be significantly higher. If you're looking at a car that's at the edge of a lender's age limit, expect to pay 1 to 2 points more in interest than you would for a car that's 5 years old.
Mileage thresholds vary by lender, but most want to see fewer than 100,000 to 120,000 miles on the odometer. Every 10,000 miles above that can nudge your rate up slightly. If you're torn between two cars and one has 60,000 miles while the other has 90,000, the lower-mileage car will almost certainly may have access to for a better rate.
How down payment size changes your rate and monthly payment
The more money you put down upfront, the less you have to borrow, and the lower your rate will be. Putting down 20% instead of 10% typically lowers your rate by 0.5 to 1 percentage point. A larger down payment also means a smaller monthly payment and less total interest paid over the life of the loan.
Lenders also look at the loan-to-value ratio — the amount you're borrowing divided by what the car is actually worth. If a car is worth $15,000 and you're borrowing $12,000, your loan-to-value ratio is 80%. If you're borrowing $13,500, it's 90%. Lenders prefer ratios below 80% and will charge more if you're above that. This is why putting down at least 20% matters: it keeps you below the 80% threshold and qualifies you for better rates.
Where to shop for used car loan rates
You can get a used car loan from a bank, a credit union, an online lender, or the dealership itself. Each source has different rates and terms. Banks typically offer competitive rates if your credit is good, but may decline you if your score is lower. Credit unions often have lower rates than banks and are more flexible with credit scores, but you have to be a member. Online lenders move fast and work with a wider range of credit profiles, but their rates are usually higher than banks or credit unions.
Dealership financing is convenient — you complete the paperwork on the lot — but it's almost never the cheapest option. Dealerships mark up the rate they receive from their lender, so you pay more. The exception is when a manufacturer is running a promotional rate, which happens occasionally on used cars certified by the manufacturer.
Shop at least three lenders before you buy. Get a rate quote from your bank, a credit union, and one online lender. Each inquiry counts as a single hard pull on your credit report if you do them within 14 days, so the damage to your score is minimal. The difference between the lowest and highest rate you receive could be 2 to 3 percentage points — that's hundreds of dollars saved.
Loan term length and how it affects your total cost
Used car loans typically run 36 to 72 months, though some lenders offer terms as long as 84 months. A longer loan means a lower monthly payment but more interest paid overall. A shorter loan means a higher monthly payment but less total interest.
On a $20,000 used car loan at 6%, a 48-month term costs about $450 per month and $1,600 in total interest. A 72-month term costs about $320 per month but $3,100 in total interest. The monthly payment is $130 lower, but you pay nearly $1,500 more in interest. Choose the shortest term you can afford, because the monthly payment difference is usually smaller than you think.
Be cautious of loans longer than 60 months on used cars. The older the car gets, the more likely it is to need repairs. If your loan extends to 72 or 84 months, you could still be making payments after the car's warranty expires and major repairs become your responsibility. A 48 or 60-month term is usually the safer choice for a used vehicle.
How used car rates compare to new car rates right now
New car loan rates are lower than used car rates because new vehicles depreciate more slowly and come with a manufacturer's warranty. A borrower with a 700 credit score might receive a new car loan at 5.5% but a used car loan at 7.5% from the same lender. The gap narrows slightly for borrowers with excellent credit (750+) but rarely disappears.
The actual rates available change based on economic conditions and what individual lenders decide to offer. One bank might price used car loans at 6% while another prices them at 7.5% for the same borrower. This is why shopping around matters — the difference between lenders is often larger than the difference between new and used rates.
If you're deciding between buying a new car and a used car, the interest rate difference is one factor, but not the only one. A new car costs more upfront, depreciates faster in the first few years, and has higher insurance costs. A used car has a lower purchase price and slower depreciation after the first owner, but may need repairs sooner. Run the numbers on both options before you decide.
Frequently Asked Questions
Can I get a better rate if I wait to buy?
Interest rates change based on Federal Reserve decisions and lender strategy, not on a predictable schedule. You can't time the market. If you need a car now and your credit score is below 700, spending a few months paying down debt and building your score will lower your rate more than waiting for rates to drop. If your score is already above 740, the rate you see today is likely close to what you'd see in three months.
What's the difference between a pre-approval and a rate quote?
A rate quote is an estimate based on your credit profile and the loan amount you're asking about. A pre-approval is a commitment from the lender that they will fund a loan up to a certain amount at a certain rate, usually valid for 30 to 60 days. Pre-approvals carry more weight when you're negotiating with a dealer because the dealer knows the money is real. Get pre-approved before you shop for a car.
Does the color or model of the car affect my rate?
No. Lenders care about the age, mileage, and value of the vehicle, not its color or model. However, some models hold their value better than others, which means the loan-to-value ratio might be better on a Toyota than on a less reliable brand. That affects your rate indirectly, but the model itself doesn't.
What if I have a co-signer — does that lower my rate?
Yes, if your co-signer has better credit than you do. A co-signer with a score above 750 can lower your rate by 1 to 2 points. The co-signer is legally responsible for the loan if you don't pay, so make sure they understand that before they sign. Some lenders allow you to remove the co-signer after 12 to 24 months of on-time payments.
Should I refinance my used car loan if rates drop?
Refinancing makes sense if the new rate is at least 1 to 2 points lower than your current rate and you have at least two years left on your loan. Calculate how much you'll save in interest against the cost of refinancing (usually $50 to $300). If you're planning to sell the car soon, refinancing probably isn't worth it. If you're keeping the car for several more years, it usually is.