Is it better to buy new or used with a loan?
Asked by: Prof. Magdalen Kutch Jr. | Last update: May 25, 2026Score: 4.2/5 (34 votes)
It's generally better to buy a used car with a loan for cost savings (less depreciation, lower total interest) but often better to buy a new car with a loan for lower interest rates, promotional deals (like 0% APR), and better reliability/warranty, though this depends heavily on your credit score and the specific used car's condition and age. A Certified Pre-Owned (CPO) car offers a middle ground with inspection and warranty benefits, often with better financing than standard used cars.
Is it better to get a new car loan or used car loan?
It may be easier to secure a loan for a new car than it is for a used car, and new car loans often come with lower interest rates. Used cars can be a good fit if you're on a budget and they generally cost less to insure; however, interest rates for used car loans are often higher than for new car loans.
What's the smartest way to pay for a car?
The best way to pay for a car depends on your finances, but generally, paying mostly cash with some financing offers a good balance, while paying all cash saves on interest but can tie up savings. For financing, securing a low-interest loan is key, and consider dealer financing incentives (like 0% APR) or refinancing for better rates, keeping loan terms short (under 60 months). Acceptable payment methods for dealers include cashier's checks, wire transfers, or credit cards for deposits to get perks like points or purchase protection.
What is the 8% rule when buying a car?
The 8% rule is the "8" in the Money Guy's 20/3/8 car buying guideline, meaning your total monthly car expenses (payment, gas, insurance) should not exceed 8% of your gross monthly income, ensuring you don't overspend and can meet other financial goals like investing. This rule encourages responsible car purchases by limiting debt, ideally alongside putting 20% down and financing for no more than 3 years, though the 8% component focuses on ongoing affordability.
Why does Dave Ramsey say not to buy a new car?
Dave Ramsey advises against buying new cars primarily due to rapid depreciation, calling it the "stupid tax" because they lose significant value (around 60% in five years), making them a poor investment; instead, he recommends buying reliable used cars with cash to avoid debt and build wealth, reserving new cars for those with a net worth over $1 million.
Should I Buy a NEW or USED Car? (Updated 2025)
What is a red flag in a dealership?
Car dealership red flags include high-pressure tactics (rushing, "sleep on it" advice), refusing the "out-the-door" price, hiding fees (market adjustments, prep fees), making financing conditional, and restricting independent mechanic inspections or test drives; also watch for vague warranties, poor vehicle history, and inconsistent pricing on similar cars. Be wary of deals that seem too good to be true or pushy salespeople trying to upsell unnecessary add-ons like paint protection.
What is the most financially smart way to buy a car?
The best way to finance a car involves getting preapproved from a bank or credit union before visiting the dealership to compare rates, making a significant down payment (15-20% is ideal), keeping loan terms shorter (around 48-60 months), and negotiating the total car price separately from the financing, allowing you to get a lower interest rate and save money long-term. Leasing or other options like PCP/HP exist, but a direct loan with good credit offers the most equity.
What should a $30,000 car payment be?
For a $30,000 car, the average monthly payment varies greatly but often falls between $450 to $600, depending on your down payment, interest rate (APR), and loan term (e.g., 60 or 72 months), with shorter terms having higher payments but less total interest, and longer terms having lower payments but more interest paid over time.
What not to say when financing a car?
"I'm Going to Pay Cash!"
If they know you have a specific budget, they also know they won't be able to move you up to a more expensive, profitable model. So if the salesperson asks about financing, just say you're undecided.
What is Dave Ramsey's rule on car buying?
Dave Ramsey's core car buying rule is to pay cash and avoid car loans entirely, because cars depreciate rapidly. He recommends that the total value of all your vehicles should not exceed 50% of your annual income, and you shouldn't buy a new car unless you're a millionaire, focusing instead on older, reliable used cars you can afford to buy outright to stay out of debt and build wealth.
What is the four square trick at a car dealership?
For years, dealerships have been using a tactic called a “four square”—a sheet of paper divided into four boxes where the salesperson will write down your trade value, the purchase price of the vehicle you're buying, your down payment, and your monthly payment.
How much is $40,000 car payment for 60 months?
For a $40,000 car loan over 60 months, your monthly payment will vary significantly with the interest rate (APR), but expect payments from around $700 to over $900, with lower rates (e.g., 2.9% APR) being closer to $737-$755 and higher rates pushing it towards $875 or more, plus interest, depending heavily on your credit score.
Do dealerships like when you pay cash?
Why do dealerships not want you to pay cash? Dealerships don't want you to pay cash because they don't earn a commission on arranging financing. If you qualify for in-house financing, the profits they miss out on increase since they don't have to work with a third-party lender.
Which car flips over the most?
SUVs, pickup trucks, and vans have the highest rollover risk due to their high center of gravity, with smaller SUVs and certain older models (like early Ford Explorers, Jeep Wranglers, Chevy Trailblazers, Nissan Pathfinders) often cited for instability, though modern vehicles have improved; however, specific models like the Ford Bronco and Mercedes G-Class show higher fatal rollover rates, and sporty cars (Camaro, Challenger) also appear on danger lists due to specific risks, according to IIHS and iSeeCars data.
What is the best month to buy a used car?
The best months to buy a used car are typically November, December, January, and February, due to end-of-year and new-year inventory clear-outs, plus dealer quotas, making October through March generally ideal for deals as demand slows and new models arrive. Major holidays like Presidents' Day, Black Friday, and New Year's also present opportunities, while slower weekdays (like Mondays) and the end of the month offer extra leverage.
What is a good APR for a 72 month car loan?
A good 72-month car interest rate (APR) right now is generally under 7% for excellent credit, with averages around 4.5% to 7% for new cars, but rates can vary significantly by your credit score, lender, and market conditions, with some lenders offering rates as low as 4.59% for strong borrowers, while averages hover closer to 6-7% for new cars. Used car rates are higher, with averages around 9-12% for good credit, but top rates can be under 6%.
What is the 12 second rule for cars?
The 12-second rule in driving means constantly scanning the road 12 seconds ahead of your vehicle to identify potential hazards early, giving you ample time to react, decide, and execute maneuvers safely, preventing sudden stops or swerving; it translates to roughly one city block in town or a quarter-mile on the highway, focusing on the whole scene, not just the road ahead.
What is a red flag in a car dealership?
Car dealership red flags include high-pressure tactics (rushing, "sleep on it" advice), refusing the "out-the-door" price, hiding fees (market adjustments, prep fees), making financing conditional, and restricting independent mechanic inspections or test drives; also watch for vague warranties, poor vehicle history, and inconsistent pricing on similar cars. Be wary of deals that seem too good to be true or pushy salespeople trying to upsell unnecessary add-ons like paint protection.
What is the 20% rule when buying a car?
The "20% rule" in car buying usually refers to the 20/4/10 guideline: a 20% down payment, a maximum 4-year loan term, and total monthly car expenses (payment, insurance, gas, maintenance) under 10% of your gross income, preventing overspending by reducing loan principal and interest, shortening loan duration, and keeping total costs manageable relative to income, say Auction Direct USA and Arizona Central Credit Union https://www.azcentralcu.org/blog/20-4-10-rule-for-smart-car-buying/. A stricter version is the 20/3/8 rule, which limits the loan to 3 years and total car costs to 8% of gross income, aiming for faster payoff and greater savings, according to Money Guy https://moneyguy.com/guide/20-3-8-rule/.
How much is a $25,000 car loan for 72 months?
For a $25,000 car loan over 72 months, your monthly payment will vary significantly with the interest rate (APR), but expect payments generally ranging from around $350 to $450+, with higher rates leading to higher payments and much more total interest paid over the life of the loan, so using an auto loan calculator with your specific rate is best. For example, at 9% APR, the payment is about $451, while a lower rate (like 3.74%) could bring it down to $310.54, but a rate over 6% starts getting much higher.
What credit score is needed for a $30,000 car loan?
For a $30,000 car loan, you generally need a FICO score of 661 or higher (Prime) for competitive rates, with scores of 670+ (Good) or 740+ (Great) leading to much better interest rates, though approvals are possible with lower scores (Fair/Subprime 601-660) but at a higher cost, and even scores below 600 can get loans, albeit with very high rates. Lenders look at your score as a risk indicator, so higher scores mean lower interest, saving you thousands over the loan term.
Is a 60 or 72-month car loan better?
A 60-month car loan means higher monthly payments but less total interest and faster equity, while a 72-month loan offers lower monthly payments for easier cash flow but costs significantly more in total due to higher interest rates and greater risk of being "upside down" (owing more than the car is worth). The best choice depends on your budget, how long you keep cars, and if you prioritize lower payments (72-month) or lower overall cost (60-month).
What is the smartest thing to do when buying a car?
Smart Tips for Buying a New Car
- Define Your Needs and Budget. ...
- Do Your Research. ...
- Leasing vs Buying. ...
- Finance Option - Pre-qualify Your Rate and Term. ...
- Make the Most out of Your Test Drive. ...
- Smart Negotiation. ...
- Conclusion.
What is the 2038 rule?
The 20/3/8 car-buying “rule” is more like a financial guideline, and it will help you assess your purchasing power. The rule addresses three components of car-buying: the (20%) down payment, (three-year) loan term and (8% of) your monthly budget.
How much is $40,000 car payment for 60 months?
For a $40,000 car loan over 60 months, your monthly payment will vary significantly with the interest rate (APR), but expect payments from around $700 to over $900, with lower rates (e.g., 2.9% APR) being closer to $737-$755 and higher rates pushing it towards $875 or more, plus interest, depending heavily on your credit score.