Buying a used vehicle has long been viewed as the financially smarter alternative to purchasing a new one. Used cars typically cost thousands of dollars less, depreciate more slowly, and often deliver similar functionality for everyday drivers. However, one growing factor is changing that equation: financing costs.
According to Experian’s State of the Automotive Finance Market: Q1 2026, the average annual percentage rate (APR) for a used-car loan reached 11.43%, compared with 6.39% for a new-car loan. The nearly five-percentage-point gap means many buyers financing a used vehicle are paying interest rates that are almost double those of new-car purchasers.
A used vehicle typically requires a smaller loan, but higher interest rates can substantially increase the amount paid in interest over the life of the loan.
The difference reflects more than just market conditions. It highlights how lenders evaluate risk, how consumers are adapting to higher vehicle prices, and why financing has become just as important as the sticker price when shopping for a vehicle.
For buyers comparing new and used models, understanding the cost of borrowing is now just as critical as comparing horsepower, fuel economy, or reliability.
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Why Used-Car Loans Carry Much Higher Interest Rates
At first glance, it may seem counterintuitive that financing a less expensive vehicle often comes with a much higher interest rate. The explanation lies in how lenders assess risk.
Unlike new vehicles, used cars have already experienced years of depreciation and accumulated mileage. They are generally more likely to require repairs, suffer unexpected mechanical failures, or lose value more quickly depending on age and condition.
From a lender’s perspective, the vehicle itself serves as collateral for the loan. If a borrower defaults, recovering the outstanding balance becomes more difficult when the collateral has depreciated significantly.
Experian notes that the average new-car loan amount reached $43,925 in Q1 2026, while the average used-car loan totaled $27,070. Although used-car buyers borrow nearly $17,000 less, lenders still charge substantially higher interest rates because the loans are considered riskier.
Borrower profiles also play an important role. According to Experian, the average credit score for new-car buyers was 751, compared with 682 for used-car buyers. Consumers with stronger credit histories generally qualify for lower APRs, while those with lower scores are charged higher rates to compensate lenders for additional risk.
This trend becomes even more pronounced among lower credit tiers. Experian’s data shows that buyers with excellent credit averaged 4.55% APR on new vehicles and 6.30% on used vehicles.
For subprime borrowers, average rates climbed to 13.44% on new vehicles and 19.42% on used vehicles, while deep subprime buyers faced average used-car APRs of 21.77%. These figures demonstrate how both vehicle age and borrower creditworthiness combine to influence financing costs.
Another reason for the disparity is manufacturer support. New vehicles frequently qualify for promotional financing offered through automakers’ captive finance companies.
Brands such as Ford, Toyota, Honda, Hyundai, and General Motors routinely advertise low-interest financing for qualified buyers, including offers as low as 0% or 1.9% APR during promotional periods.
Used vehicles rarely qualify for these manufacturer-backed incentives, leaving buyers dependent on traditional banks, credit unions, or independent finance companies.
Higher Rates Are Changing the Economics of Buying Used
Despite the significantly higher APR, used vehicles continue to represent an important part of the automotive market because they remain considerably less expensive to purchase.
Experian reports that the average monthly payment for a new vehicle reached $770, while the average used-car payment was $531 during the first quarter of 2026.
The lower payment reflects the smaller loan amount rather than cheaper financing. In fact, the higher interest rate means used-car buyers often pay a surprisingly large amount in finance charges over the life of the loan.
Longer loan terms have become one strategy for managing those payments. According to Experian, the average loan term reached 69.48 months for new vehicles and 67.73 months for used vehicles.
At the same time, nearly 31.54% of used-vehicle loans extended beyond six years, an increase from 28.60% one year earlier. Longer repayment periods reduce monthly payments, making financing more accessible, but they also increase the total interest paid over the life of the loan.
Affordability pressures have also encouraged more consumers to refinance existing auto loans. Experian found that borrowers who refinanced during Q1 2026 reduced their interest rates by an average of 2.2 percentage points, lowering monthly payments by approximately $81.
Credit unions accounted for more than 63% of all refinancing activity, demonstrating their growing role in helping consumers reduce borrowing costs.
The financing landscape is also evolving because lenders have expanded credit availability. Experian reported that subprime borrowers represented 15.75% of all vehicle financing during Q1 2026, an increase from 14.40% a year earlier.
This broader access to financing has helped more consumers purchase vehicles, but it has also reinforced the importance of comparing loan offers carefully, particularly for buyers considering used vehicles with higher average APRs.
Another financial consideration is negative equity. When borrowers finance vehicles over six or seven years while paying elevated interest rates, they often owe more on the loan than the vehicle’s market value for a substantial portion of the repayment period.
This situation can complicate trade-ins or early vehicle replacements because outstanding loan balances exceed the vehicle’s resale value. Industry analysts have noted that extended loan terms combined with slower depreciation recovery have contributed to record levels of negative equity in recent years.
Consumers should keep in mind that the advertised APR represents only one part of the cost of owning a vehicle. Insurance, maintenance, registration, fuel, and extended warranty expenses can all add significantly to the amount spent over the course of ownership.
In some situations, a new vehicle with promotional financing, manufacturer warranty coverage, and better fuel efficiency may ultimately cost less over several years than an older used vehicle financed at a significantly higher interest rate.
That does not mean buying used is the wrong decision. For buyers paying cash or those who qualify for competitive financing through banks or credit unions, used vehicles continue to offer excellent value. The key is understanding that the sticker price alone no longer tells the full financial story.
Before committing to a purchase, buyers should obtain pre-approval from multiple lenders, compare interest rates, evaluate total finance charges rather than monthly payments alone, and consider shortening the loan term whenever possible.
Even reducing an APR by one or two percentage points can save thousands of dollars over the life of a typical auto loan.
Experian’s latest figures underscore how dramatically financing costs have changed in today’s automotive market. The 11.43% average APR for used vehicles versus 6.39% for new vehicles illustrates that lower purchase prices do not automatically translate into lower ownership costs.
Instead, consumers must evaluate the complete financial picture, balancing vehicle price, financing terms, interest costs, depreciation, and long-term affordability before deciding whether a new or used vehicle truly offers the better value.
Credit unions are also becoming a more important part of the used-car financing landscape. Banks and automaker-backed finance companies still account for a large share of auto loans, but credit unions are increasingly attracting used-vehicle shoppers with competitive interest rates and more flexible repayment terms for qualified members.
Experian data from the first quarter of 2026 showed that borrowers who refinanced through credit unions could achieve notable reductions in both APR and monthly payments. The results highlight the potential savings that can come from comparing multiple financing options before settling on a loan.
Rather than accepting the first loan offered at a dealership, financial experts generally recommend obtaining pre-approval from multiple lenders before beginning the buying process.
Industry analysts also point out that used-car values have begun stabilizing after the extraordinary price swings seen during the pandemic years.
Although prices remain higher than historical averages, improving inventory and increased new-vehicle production have eased some of the supply pressures that previously drove used-car values to record highs.
This gradual normalization could help buyers over the coming years, but financing costs are expected to remain an important factor until interest rates decline more substantially. For consumers, the key takeaway from Experian’s Q1 2026 report is clear: the purchase price alone no longer determines whether a used vehicle is the better financial decision.
Carefully comparing loan offers, understanding the total interest paid over the life of the loan, and choosing a repayment term that balances affordability with long-term costs can save thousands of dollars and make vehicle ownership considerably more manageable.
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