A good used car can have a sticker price which is a little higher than someone can comfortably afford in cash, leading to the need for used car financing to make the car affordable. There are a few things to keep in mind when looking for a used car loan which will make the process easier, and result in a better loan in the long term. Something like one point of difference in an interest rate might not seem like a big deal in the rush of signing the paperwork on a used car, but that could represent substantial savings or a big increase in cost over the life of the car, making it worth it to find the right loan at the start.
Before shopping for used cars or loans, it is a good idea to sit down and determine how much car someone can afford. Drivers should remember that in addition to monthly payments, cars will also need to be insured, and the car will require gas and periodic repairs and maintenance. All of these costs can add up, and it is important to provide for them in a monthly budget to avoid nasty surprises or a loan which is too big to carry comfortably.
While putting together a loan, it can help to use a car loan calculator to get a rough idea of how things like the amount of a loan, the length of a loan, and the interest rate can change monthly payments and the total cost of the loan over time. As a general rule, loans with short terms are better, because borrowers pay less interest, and the lower the interest rate, the less costly the used car financing will be.
Once buyers have an idea of their price range, they can approach local lenders. Credit unions are often a great source for used car financing, offering low interest rates to their members, but it pays to shop around and get an idea of the rates offered by several lenders. Borrowers should be aware that the quoted rates usually reflect an “ideal borrower” with a very high credit score, and people with lower credit scores may not qualify for those rates. Rates also vary depending on the age of the car, which is another thing to take into account.
It is also possible to find used car financing online, and through lenders which are not locally based, although the service on this used car financing may not be as good. To avoid a negative impact on their credit scores, borrowers should shop around without actively applying for any loans, and ask only one or two lenders which appear to have good rates and terms for preapproval on a used car loan. In a preapproval, the lender will provide the borrower with paperwork indicating how much the lender will give out, and what the interest rate and terms of the loan would be.
One thing people should definitely avoid with used car financing is financing a car through the dealer. Dealers may have working relationships with local lenders, but these relationships often involve kickbacks to the dealers for routing loans to particular lenders, and the customer usually ends up paying those kickbacks. It's better to get preapproved for a loan from a lender of choice, and then select a dealer to identify the particular car to buy.
