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Written by Andrea Klinedinst, Executive Administrative Assistant

Whether it’s your first car or your fifth car, choosing to purchase a vehicle and what kind to purchase is a big decision. You can decide the make, model, and color, and don’t forget to consider mileage and fuel efficiency. Of course, you also need to decide what kind of financing you need, which can influence your decision to purchase a new or used vehicle. But how do you know what financing option is the best for you and is there really that much difference in financing a new versus used vehicle? Our expert for this article, Carson Markland, Retail Lending Officer at our Canton banking center, has these answers and more below.

What is a vehicle loan and how are they typically structured?

Carson Markland (CM): A vehicle loan is a type of installment loan that helps a borrower purchase a vehicle (car, truck, motorcycle, etc.) by borrowing money from a lender and repaying it over time with interest. It's one of the most common forms of consumer credit.

A typical vehicle loan is structured on the following:

• Loan amount – the amount you borrow to buy the vehicle after subtracting a down payment or trade in if applicable.
• Loan term – the length of time it will take you to pay the loan back.
• Interest Rate (APR) – the cost of borrowing money shown as a percentage.
• Monthly Payment – the amount you pay each month, which covers principal and interest.
• Collateral – the vehicle you’re purchasing is the collateral.
• Down Payment – an upfront payment to reduce the loan amount. This isn’t something that is required, but it does help lower your monthly payments.

What are the main differences between new vs. used vehicle loans?

CM: The main differences between new vehicle loans and used vehicle loans are primarily related to loan terms, interest rates, and eligibility requirements.

What are the pros and cons for new vs. used vehicle loans?

CM: Pros for new vehicle loans:

• Lower interest rates because the vehicle is new and has less risk for the lender.
• Longer loan terms because the vehicle has a higher value, so lenders are comfortable offering longer repayment periods.
• Warranties are often included in new vehicles; therefore, buyers don’t have to worry about major repairs for a few years.

Cons for new vehicle loans:

• New vehicles tend to be more expensive, therefore, needing to borrow a higher amount and increasing your monthly payment.
• New vehicles tend to have higher insurance costs because their replacement cost is more expensive.
• New cars depreciate quickly. As soon as you drive it off the lot, the value drops, often between 20-30% within the first year.

Pros for used vehicle loans:

• Used vehicles generally have a lower purchase price, which means smaller loan amount and smaller monthly payments.
• Used vehicles also depreciate slower. While they’ve already lost a good chunk of value, they won’t lose it as quickly as a new car does.
• Used vehicles also have lower insurance costs because their replacement value is lower.

Cons for used vehicle loans:

• Used vehicles typically have a higher interest rate because the vehicle is considered a higher-risk asset.
• Most used cars no longer have a manufacturer’s warranty, which means the buyer could have higher maintenance costs for repairs.
• Used vehicles come with limited financing options. Some financial institutions may have restrictions on how old the vehicle can be or have limited loan term options.

How can you apply for a vehicle loan at MNB?

CM: There are a few ways to apply for a vehicle loan at MNB. You can apply online on our website, in person at any of our banking centers, or you can even apply over the phone.

What else should you know?

CM: A few final tips for new and used vehicle loans are that you should know your budget and understand your car’s value. Don’t just focus on the monthly payment; consider the total loan amount, interest, and additional costs like taxes, fees, and insurance. Be mindful of the car’s current market value and future depreciation.

If you have any further questions or would like to apply for a vehicle loan, reach out to us today at any of our banking centers, online, or by phone at 877-647-5050.