If you're in the market for a vehicle, you’ll have to decide whether to buy new or used. Beyond cost and features, financing plays a sizable role in decision-making. Many buyers wonder: “Is it better to get approved for a new or used car?”

The answer depends on lender requirements, credit history, and the finance terms. To help you make the best choice, let’s explore the differences in financing approval for new and used vehicles.

What to expect from new car financing

A lower risk for lenders

Lenders see new cars as less risky because their depreciation follows a predictable pattern and because they come with manufacturer warranties.

Dealer and manufacturer incentives

Many dealerships and manufacturers offer special financing deals, including:

• Special financing for well-qualified buyers
• Cash rebates or discounts when financing through their preferred lenders
• Extended finance terms that allow for lower monthly payments

More lenders to choose from

Banks, credit unions, and dealerships are more likely to approve financing for new vehicles, giving buyers a wider range of financing options. With greater competition among lenders, buyers may find it easier to secure favorable terms.

What to expect from used car financing

Stricter credit requirements

Lenders often require higher credit scores for used car financing. Since used vehicles have more wear, lenders may impose stricter qualifications to minimize potential losses.

Higher interest rates

Interest rates for used cars are usually higher than those for new vehicles. This difference occurs because used cars carry more unknowns, such as potential mechanical issues and fluctuating resale values.

Vehicle restrictions

Many lenders impose restrictions on the financing of older, high-mileage vehicles. Typically, the car must be less than 10 years old and have fewer than 125,000 miles to qualify for financing.

Some lenders set borrowing limits on used vehicles, often capping them at $50,000, whereas new car financing can extend to significantly higher amounts.

Strategies to improve your approval odds

Whether you choose a new or used vehicle, there are steps you can take to increase your chances of approval and secure better terms.

Get preapproved

Applying for preapproval from multiple lenders within 14 days allows you to shop for the best rates without hurting your credit score. Preapproval also gives you a clear budget before visiting a dealership.

Make a larger down payment

Putting at least 10% down on a used car and 5-10% down on a new vehicle reduces the borrowing amount, which could lead to lower interest rates.

Improve your credit score

Before applying for financing, improving your credit score can help you secure better terms. Pay down credit card balances to keep your credit utilization — what you can charge vs. what you have — below 30%. Consistently making on-time payments for all bills and debts is also crucial, as payment history is a big factor in credit scoring.

Additionally, search your credit report for errors and dispute inaccuracies to ensure your score reflects your financial standing. These steps can improve your approval chances and lead to more favorable interest rates.

Consider a cosigner

If your credit score is low, adding a cosigner can help you get financing approved.

Should you finance a new or used car?

Why choose a new car

A new car may be the right choice if you want easier financing approval and lower interest rates. Buying a new vehicle may also allow you to take advantage of special manufacturer incentives, such as cashback offers or low APR financing.

If you plan to keep a car for a long time, buying a new one ensures you benefit from warranty protection, reducing potential repair costs in the first few years of ownership.

Why choose a used car

A used car may be the better option if you’re looking for lower overall costs, as pre-owned vehicles typically come with a smaller price tag and lower insurance premiums. Buying used also helps you avoid the steep depreciation that new cars experience in the first few years, allowing you to retain more of the car’s value over time.

If you have good credit, you may also qualify for a competitive interest rate, making a used car an even more cost-effective choice.

Setting yourself up for success

While new cars are often easier to finance, used cars can still be a great option, especially if you have good credit. Whether you choose new or used, getting preapproved, making a substantial down payment, and improving your credit score first can boost your chances of obtaining better financing terms.

At Credit Acceptance, we work with dealerships nationwide to help buyers secure financing — regardless of credit history. If you’re ready to explore your car financing options, you can start the pre-qualification process today!