New cars are cheaper than used cars in an upside-down economy

zero percent financing

A new car loan could be cheaper than buying used thanks to 0 percent financing and a low inventory of used vehicles for sale. Image: CC madro21/Flickr

In an economy turned upside-down, a new car loan has become more affordable that buying used. Car buyer incentives from some automakers are so generous that conventional wisdom about car buying can be tossed out the window. Certain makes and models cost less per month new than the same vehicle driven for a year by a previous owner.

Free financing sends auto lending askew

Unless you’re paying quick cash, getting a loan for a new car could be smarter in many cases than buying used. Because interest rates remain extremely low in the aftermath of the recession, loan rates for new vehicles have imploded. According to, the average rate for an auto loan was a mere 4.16 percent in December. Strangely enough, more than 15 percent of auto loans are virtually devoid of interest. General Motors, which is showing signs of life after a notorious government bailout, offers 0 percent financing on 50 percent of its auto loans. However, 0 percent financing isn’t for everyone. Strong credit is needed to qualify for such a sweet deal, to the tune of a FICO score of at least 650 and sometimes above 700.

How new cars can be cheaper than used cars

While average interest rates for new car loans are about 4 percent, rates for used cars are still about 8 percent. Plus, the price difference between used and new cars has also narrowed for a number of reasons. The “cash for clunkers” program in 2009 cleared the market of about 700,000 used cars. The financial crisis and credit crunch that hit new car sales so hard affected the amount of used cars being traded in. And some deals on new cars are so generous that a new vehicle is cheaper over the life of a five-year car loan that a one-year-old edition of an identical model.

Which new cars are cheaper than used cars?

To make a list of new cars that are cheaper than used cars, compared the average used car interest rate of 7.7 percent with a 0 percent new car loan available for certain models. Auto loans were for five year terms, and other incentives were figured in. Some of the vehicles on the list include the Audi S4 Premium Plus Quattro Sedan, with a savings of $1,020; the Honda CR-V EX with a savings of $1,320; and the Toyota FJ Cruiser base model, also with a savings of $1,320.