New Car Finance Rates VS. Used Car Finance Rates?

Question

What is the reasoning behind a banks' decision to charge higher interest rates for used cars vs. new cars? It's a secure loan anyways. I've always thought that a higher interest rate protects the bank in case u have bad credit because the risk is higher, which I understand totally... but what does a car's age or mileage have to do with interest rates? The risk is protected by the loan value.

I was quoted 8.45% for a 2006-2007 vehicle of any kind, or 9.39% for a 2005 or below. This was prior to the prospective Lien Holder knowing what I was going to get. It had nothing to do with dealership incentives.

Answer 1

Actually, they are the same. The promotional deals where you buy a new car for a token or no interest are always in the alternative of taking a cash rebate instead. Forfeiting the cash rebate in favor of a lower interest rate is simply a pre-payment, or buy down, of the real interest rate. The only way to be sure of what is going on is to compare the terms with a financial calculator such as an HP-12C.