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People are going crazy. Transaction prices are through the roof because MSRPs and especially used car loan interest rates are crazy high. Monthly payments are way up from where they were in 2020 before everything went nuts. Then there are those new cars and trucks sitting in fields that can’t move because they’re in need of some component tied up in the supply chain Twilight Zone. Oh, and 84-month payments are becoming the norm in a futile effort to keep vehicles “affordable.”

Why is a used car loan so much these days?

Car loans
Are car loans up or down? | CARL DE SOUZA/AFP via Getty

Yes, it’s a lot to take in, but it shows how the autoverse is changing. As for interest rates, well, they’re up or down depending on how the feds manipulate them to slow down inflation. Unfortunately, The feds don’t seem to realize that raising interest rates to get people to save doesn’t work. Families are spending everything they bring in to cover monthly expenses.

So now with the higher rates it takes to borrow money, used car loans are, on average, 12.37 percent according to Cox Automotive. And keep in mind that is an average, which means some folks are paying well over that because they have no other choice. 

Cars are necessities for those without good public transportation. So it really is the only choice for many. But it’s not a good financial choice, especially compared to this time last year.

What’s a good used car loan rate?

used cars
2.9% for 60 months on certified used Toyotas | Francis Dean/Corbis via Getty

The average interest rate for new cars in the first part of last year was 4.07 percent. For used car loans, the rate was 8.62 percent. And even that is not a good rate. For those with high credit scores, these numbers can be smaller. Financial advisors say any loan above seven percent should be paid off as quickly as possible. It is just a temporary bridge.

The New York Times says that analysts expect about 36 million used cars to sell in 2023. That’s a lot of cars changing hands. But if one needs a better car, especially to get back and forth to work, then it becomes a necessity to earn a living. 

The good news is that prices for used automobiles are coming down. That is partially due to new cars becoming more abundant as supply chain issues diminish. And also because buyers are balking at certain price thresholds. They won’t step up if they feel a car is overpriced. Once said car sits around for longer than the dealer or private owner wants, then the price gets cut. 

How much does a used $20,000 car really cost?

used cars
Red Tag sales | Richard Sheinwald/Bloomberg via Getty

At some point, the used car becomes more attractive and sells. But buyers should always keep in mind what the car is actually costing. That means factoring in the interest you’re paying

So as an example, you’re purchasing a $20,000 car and have enough money to put down $4,000. With an 84-month loan, you’ll pay only $282 a month. But spread out for 84 months, you end up paying $27,723 factoring in interest and the down payment. And that doesn’t include taxes and registration fees. 

With an average sales tax of six percent, that will add an additional $1,200 to the bottom line. So when you’re all done adding things up like monthly insurance and registration, you’re looking at that $20,000 car costing $30,000. And $30,000 is a crazy price to pay for a $20,000 car. 


Important Tips For Financing a Used Car