Used Vehicles & Interest Rates: How it Works

Why Used Car Interest Rates Have Increased

It's no secret that used car interest rates have increased in recent years across the nation. But why? During the COVID19 pandemic, manufacturers were short on producing chips for new vehicles, which put a halt on new car distribution across the United States. This resulted in a high demand for used cars, driving interest rates up to retain used car lots. Since then, manufacturers have produced so many new cars, resulting in a need for OEM-based interest rate incentives, however, dealerships still struggle to re-fill their car lots with used inventory. While Benson Kia is proud to work with many local banks who can typically give better used interest rates, buyers are still looking towards buying new vehicles due to OEM-backed rates. Here's a look at why used car rates are typically higher than new car rates…

Depreciation and Risk: Used cars generally come with higher risk for lenders. They have already depreciated, may have unknown or undisclosed mechanical issues, and are generally considered less reliable than new cars. To offset this increased risk, lenders charge higher interest rates.

Loan Terms: The terms for used car loans are typically shorter than those for new cars. Since lenders have less time to earn interest on a used car loan, they often charge a higher rate to ensure they receive a reasonable return on their investment.

Credit Risk: Borrowers purchasing used cars often have lower credit scores on average compared to those buying new cars. Higher interest rates reflect the higher credit risk associated with these borrowers.

Resale Value: New cars have a more predictable and often higher resale value, making them less risky for lenders. If a borrower defaults on a loan, a new car is easier to resell at a higher price, mitigating potential losses for the lender.

Market Competition: The new car market is competitive, with manufacturers and dealerships looking to grow new customers. This competition drives down financing costs for new cars as OEMs used attractive financing offers to bring in buyers. The used car market, while competitive, does not have the same level of manufacturer support to drive down interest rates.

Why Buy at Benson Kia?

Benson Kia, located in the greater Greenville and Spartanburg area of South Carolina, is a family-owned dealership for 50+ years. We offer a range of used cars across our locations in the upstate and work with local lenders to get you the best rate possible for your credit. Additionally, we stock many used cars under $20,000 and offer poor credit auto financing and first-time buyer support. Get in touch with us to talk auto-finance today!