If you’re shopping for a used car, one of the most important numbers to pay attention to isn’t on the window sticker — it’s your interest rate. It can have a major impact on how much your car ultimately costs.

So, what are used car interest rate trends telling us right now, and what might the future hold? Let’s take a closer look at where things stand and why rates move the way they do.

Why are used car interest rates always higher?

The reason you’ll pay higher interest for a used car vs. a new car is simple. It comes down to risk. Lenders consider used vehicles to be less predictable collateral due to higher mileage, unknown wear and tear, or limited warranty coverage. These factors make them more difficult to value and resell if the borrower defaults, so lenders charge a higher rate to offset that risk.

The drivers behind used car rates

Several interlocking factors influence the interest rates on used cars. The broader economy drives some, while others are personal to the borrower:

• Monetary policy: When the Federal Reserve raises or lowers benchmark rates, lenders adjust their auto rates in response
• Borrower credit scores: Higher credit scores usually translate to lower interest rates. Lenders offer the most competitive rates to borrowers they deem low-risk.
• Financing structure: Shorter borrowing periods and larger down payments tend to reduce lender risk — and therefore lower the interest rate
• Vehicle characteristics: Older or higher-mileage cars can command higher rates due to their lower resale value and greater risk of mechanical issues
• Lender type: Banks, credit unions, online lenders, and dealership finance departments each have their own risk tolerance and rate structures

What the future might look like

Used car interest rates may begin to ease over the next few years, but most experts agree they’ll likely remain elevated compared to historical averages. That’s because the financial environment has shifted.

While the Federal Reserve may consider rate cuts if inflation continues to slow, such changes take time to be reflected in consumer lending. Additionally, factors such as economic uncertainty and supply chain issues may keep lenders cautious.

Modest rate declines are expected over the next three to five years, particularly for borrowers with strong credit and stable income. But broadly speaking, the “cheap” financing era that many borrowers enjoyed in the 2010s is unlikely to return.

Need to finance a used car today?

If you’re exploring used car financing, especially with credit challenges, dealers in the Credit Acceptance network can help. Start the pre-qualification process on our website today, and we’ll match you with dealers from our nationwide network of over 15,000 dealerships.