When you simply can't afford a new ride but you want more peace of mind than you'll get with just any old used car, a certified pre-owned vehicle might be the ideal choice. CPO cars have gone through a thorough inspection process by an automaker-trained technician, and they come with an extended warranty that offers increased assurance similar to that of a new-car warranty.
This added peace of mind, however, does come with a price. While the CPO car is significantly less expensive than its new counterpart, it is pricier than the basic, bare-bones used car. Simply put, that means a higher monthly payment, which is why getting a good interest rate on the car loan is all the more important.
In general, the lending arms of the automakers offer the best interest rates for CPO vehicles compared to banks and credit unions, though some of those lenders are now offering more aggressive loans on CPO cars in an effort to compete. The interest rates offered by automakers' captive lenders are usually better because the automakers use them as marketing tools to boost business.
"[Subsidized rates] help promote the brand throughout the term of the contract as well as provide the opportunity to market new products via payment mail inserts or email correspondence," said Joe Spina, senior analyst at Edmunds.com.
"CPO interest rates from auto manufacturers are down dramatically from five years ago, but they've leveled off in the past year or two," said Jesse Toprak, chief analyst at Cars.com. Current rates are frequently at 1.9% or lower for up to a 72-month loan.
Like the 0% financing deals offered for new cars, the best interest rates are reserved for buyers with the best credit, so they won't be available to everyone. "Generally, the special rates published by manufacturers are not negotiable and target only the top tier of customers," Spina said.
One point of good news is that used car buyers in general might not need as high a credit score as new car buyers in order to get the best interest rate. Credit bureaus don't break out CPO cars from traditional used cars in their research, but according to business services firm Experian's data from the third quarter of 2013, the average credit score for a used-car customer looking for financing was 668, while it was 753 for new-vehicle buyers.
One advantage to financing a CPO car at the dealership is that it streamlines the purchase process, but buyers should always shop around for financing, advised Kelley Blue Book senior analyst Karl Brauer. "A credit union, for example, might offer a better loan rate than a manufacturer for a CPO purchase, and even if they don't, at least the buyer has peace of mind that they shopped around rather than accepting the first loan terms they were offered," he said.
Another important fact to remember is that carmakers' special finance rates are typically available for only a short period of time and may come and go sporadically as a way to boost sales. "Auto manufacturers may even offer model-specific interest rates as a way to move more inventory of that car," Toprak said.
When shopping for a car loan through a bank or credit union, Brauer suggests mentioning the car is a CPO vehicle to see if that improves the loan terms. Either way, he said, borrowers should get the quote in writing. "With those terms in writing, they can compare the terms a dealer offers," he explained. "Often dealers will start with less desirable loan terms but quickly match what a buyer can show is available through a bank or their credit union."
Brauer also suggested that those in the market for any kind of car loan, including a CPO, should consider buying sooner rather than later to get the best rate. "As the government eases off its heavy bond buying of the last few years, interest rates will likely rise," he said.