Used Car Loans: What They Cost and How to Get a Fair One

Why used cars carry higher rates

A car loan is secured by the car, so the lender cares about what the car will be worth if it has to take it back. An older vehicle has less value left and is more likely to need repairs, which raises the chance that the borrower stops paying. Lenders price that risk into the rate. Captive finance companies, the lending arms of carmakers, also subsidize rates on new models to move inventory; they rarely do that for used cars outside their certified pre-owned programs.

Your credit history matters more than the car. In Experian's second-quarter 2026 data, borrowers with scores above 780 paid about 6.3% on used cars, while those between 501 and 600 paid about 19.1%. Our page on car loans with bad credit covers the lower tiers.

Where to get a used car loan

A rate quote from a bank or credit union gives you a figure to beat. Dealers can and do match outside offers, but only if they know you have one.

How age, term and price change the cost

The average used-car loan in mid-2026 ran close to 68 months. A long term lowers the payment but keeps you paying interest on a car that is losing value, and on an older car the loan can outlast the car's reliable years. If a payment only fits at 72 or 84 months, that is a sign the car is too expensive for the budget.

• Term: each extra year adds interest and slows how fast you build equity. The loan term comparison shows the trade-off for your numbers.
• Down payment: putting cash down shrinks the loan and protects you if the car loses value quickly.
• Price: taxes, the dealer's doc fee and any add-ons are usually financed too, so the loan is bigger than the sticker.
• Vehicle age and mileage: some lenders will not finance cars past a certain age or mileage, or charge more for them.

Certified pre-owned, warranties and add-ons

Certified pre-owned cars are late-model used cars that a carmaker's dealer has inspected and backs with an extended factory warranty. Because the carmaker's finance arm wants to sell them, CPO cars sometimes come with promotional rates closer to new-car pricing. The certification itself costs money, built into the price, so compare the total against a similar car without it.

On any used car, the dealer will likely offer a service contract (often called an extended warranty) and GAP coverage. Both are optional, both can be bought elsewhere, and both cost more when you finance them, because you pay interest on the price for the whole term. Our guide to GAP and service contracts explains when each one is worth having.

Watch the trade-in too. If you still owe more on your current car than it is worth, the dealer may fold the difference into the new loan. That raises the amount financed above the price of the car you are buying, and you start the new loan already owing more than the car's value. The page on trade-ins and negative equity shows how to spot it on the contract.

Signs a used car deal is too expensive

• The dealer talks only about the monthly payment and avoids the APR, price or term.
• The APR on the contract is higher than the rate you were told, or you are asked to sign again days later at a different rate.
• Add-ons appear on the contract that you did not ask for.
• The amount financed is more than the price plus tax and fees, because negative equity or products were added.

Any of these is a reason to stop and ask for the figures line by line. You can walk away until you sign.

Steps to finance a used car

1. 1 Check your credit reports for errors at AnnualCreditReport.com before you apply.
2. 2 Get a rate in advance from a bank or credit union; preapproval tells you the APR and the most you can borrow.
3. 3 Price the whole deal with tax, fees and add-ons, and decide on the payment you can afford over a term you are comfortable with.
4. 4 Have the car inspected by a mechanic you choose and read the FTC Buyers Guide on the window: it says whether the car is sold as is or with a warranty.
5. 5 Compare the dealer's offer with your own by APR, finance charge and total of payments, all shown on the contract.

Questions people ask