Many young people would not be able to afford their first car if there was no used car financing. You just don’t have the money to buy the car directly. Fortunately, it is not difficult to get such financing at very favorable interest rates. You just need to do your research and follow these simple steps.
As you scroll through the used car ads, you’ll come across what looks like an absolutely fantastic availability of car loans from the car dealers themselves. You will see zero percent offers, low payment offers that seem too good to be true. Of course they are! These ads are designed to mislead you, get you to come in and apply, and end up getting a loan of 10 to 18 percent above standard interest rates! Yes, interest-free offers are available, but only if you have a perfect loan. Most used car buyers do not fall into this category. In general, interest rates on used car loans are on average several percentage points higher than those on new cars.
One way to cut these costs is to get your loan through a dedicated finance company rather than through the dealership or your regular bank. These institutions tend to pursue a more liberal lending policy. However, each lender requires proof of the value of the car and a 20 percent down payment. This is normal and should not be considered a suspicious request. Both regulations are intended to give the lender a margin of safety should the loan default. When that happens, the lender’s only recourse is in the collateral that is the car. Therefore, of course, they have a legitimate interest in knowing that you have not paid too much for the car and that at least 20 percent of its value applies even if the failure occurs immediately. This is actually also an advantage for you. There is someone who looks over your shoulder at the transaction and makes sure it is a respectable deal and a respectable price for the vehicle in its current condition and condition.
Before you apply for your financing, carry out a credit check on yourself. This will help you determine what you can afford and what should be offered. Sometimes you may find before you really start that a used car loan is not affordable for you. This could be due to low credit score, inability to meet down payment requirements, or insurance concerns. It is important to know this, because online institutions will seduce you with one-day offers. Don’t fall for it! Despite their dire warnings before the offer expires, these lenders will be there for you tomorrow with another fantastic offer! Wait until you are satisfied with the amount and conditions. It’s not worth the devastation that a credit default can play to your credit history to take it now if you’re not sure if you can repay it as needed.
Another caution with car loans and other financial transactions – keep all your paperwork in order. If you received the loan online, print a copy of everything and keep it in a safe place. Never sign anything you don’t fully understand. Ask questions until you understand it. Talk to a third-party provider to get a different point of view. It is your responsibility to protect your own interests. Don’t expect the lender to do it for you. This is the kind of thinking that has led to the current mortgage crisis in the United States.
One last piece of advice: Once you get your used car loan, you should refinance it, especially if you couldn’t get an interest rate of zero to three percent. Refinancing sites usually have calculators so you can calculate your total savings. If you can get one percentage point below your current contract, it’s worth it.
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Wendy is now a financial analyst and writer. Wendy has been writing about finance and personal finance since she was a sophomore in high school. She has also been writing for several online publications and published in The Huffington Post, and Forbes Woman.
Wendy is a credentialed financial analyst and has experience working with financial institutions and businesses. Wendy is also a certified financial planner. When Wendy's not writing, she enjoys tending to her many plants, watching TV, and spending time with her family.
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