Getting behind the wheel of a new car is always an exciting experience. Whether you are looking to get the latest model off the lot or a more affordable second-hand vehicle, financing is one of the most important things to consider when buying a car. Understanding the differences between loans for new and used vehicles can save you thousands of dollars throughout the life of your loan. The following is all you need to know to choose the right financing plan for yourself.
Differences Between Loans Terms, Interest Rates and Qualifications
When you contact the lending institution, they determine how much risk there is involved in the transaction. The newer car is considered a lower risk since it has a known value and a manufacturer’s warranty. This is why lenders usually give better rates for new cars. There is a higher chance of the older vehicle experiencing problems during the lifetime of the loan. The vehicle also depreciates faster, which leads to lenders demanding a higher interest rate.
The terms of the loan are also going to be different. In most cases, the terms are going to be longer in case of the brand-new car. You might find loans that last up to seven years for the fresh model. The terms offered to those seeking a used car are generally shorter. The qualification requirements also differ since many banks will not finance the vehicle if it would be too old after the period expires. Most Australian lenders won’t give a loan if the used car gets too close to ten or twelve years of age by the loan’s expiry date.
Advantages and Disadvantages of Financing New Cars
There are a few clear benefits associated with taking out car loans from ING Australia, for example, for a brand-new car. Firstly, you enjoy the lowest possible interest rate. Besides, you don’t have to worry about the reliability of the new car. It usually features a warranty and modern safety equipment. Lastly, the dealerships may give additional deals and discounts when it comes to financing.
There is only one disadvantage of financing such a vehicle – its initial high depreciation rate. You will spend more time paying back the loan since the amount that is borrowed is relatively big.
Advantages and Disadvantages of Financing Used Vehicles
One of the major advantages of financing a second-hand vehicle is the possibility of having a smaller principal amount. The depreciation that was experienced in the first year is now taken care of by the previous owner. Hence, you will pay smaller monthly instalments and save quite a bit of money during the lifetime of the loan.
On the flip side, you will almost certainly face higher interest rates. Older cars lack any kind of manufacturer’s protection, which is another thing to take into account.
Drive Off with Your New Ride
Whether a second-hand or new car loan is right for you is a matter of individual choice. There are pros and cons for both types of cars. Decide for yourself what factors you should take into consideration and find the most advantageous deal among the available Australian loans!
