A used car loan is hardly worth considering if you have enough money to purchase an auto for cash. No interest burden, no compulsory car insurance fees. You just settle the account and drive away. Regrettably, a loan is the only option for the majority of used cars buyers.
Here are some practical tips that will help you in obtaining a used car loan on your terms:
For the less experienced buyer, a used car loan offered by some dealers appears to be very attractive, in terms of low interest finance, no deposit and even cash-back terms available. However, upon further examination, the details look far less acceptable. Expect to pay high interest rates for your loan. Long repayment terms are often non-negotiable; it means higher overall cost of the purchase for your used car. When you add to it the fact, that even the asking price is raised for the high risk applicants, the whole idea of obtaining a used car loan, while having a low credit score, is highly questionable. One thing needs to be mentioned though; banks are not willing to lend money for buying vehicles that are not new.
Although obtaining a used car loan from a bank is usually impossible, there are many second-tier lenders that will be willing to provide you credit. With one condition: a sizeable deposit payable before you take possession of your used car. This is designed to protect lender’s capital in case of a default by the borrower. Exact terms vary between finance companies. However, the terms of your used car loan will mainly depend on your previous credit history, employment status and any assets that you currently have. It’s all about managing risk that the lender has to face. The fact, that used cars present a much bigger challenge as far as maintaining the resale value is concerned, determines the final condition of the loan.
A well known fact is that a used car loan from financial companies will cost you much more than one obtained from a bank. Despite this, many car buyers have no other option but to accept higher interest, and monthly repayments, to be approved. This is mainly to them being credit-impaired, and consequently being deprived of accessing the main stream lenders. Dealers know that, and tend to use it to promote their own, overpriced financing.
As mentioned earlier, you’ve virtually two sources available for a loan to buy a used car. The first one: banks and credit unions lend rather reluctantly for used cars. The value is usually the problem here, and they expect you to have a high credit score. The second: finance companies and lending co-ops have less restrictive rules, but will charge you a much higher interest: 5-10% above of the bank. The solution: improve your credit score, and ask the bank again.
Be warned that a standard used car loan will not cover all your purchase expenses. There are registration fee and insurance premiums to be paid as well. Make sure, that you’ve the monies needed. As one of the options, you can include these expenses in the amount of the loan, although it’s not advisable, as it will drive your repayment amount higher.
All negotiations involved in the used car loan must be done in writing. Nothing is safer for the buyer than to have the agreement written on paper. After final negotiations, a sales contract is immediately handled by the finance and insurance office. It is by becoming cautious, careful, and meticulous on the agreement that the buyer could be more than confident about the agreed policies on the used auto loan. By becoming privy to the agreement, one also becomes knowledgeable on the potential or possible best auto loan that one can get in the market.
In some cases, you’ll come to a conclusion that to buy even a used car may be not affordable for you. This will usually be the result of your low credit score, and consequently higher interest rates for the loan, higher insurance premiums and the initial deposit. If that’s the case, it’s advisable for you to wait, rather than rush into a transaction that can bring you to the brink of personal bankruptcy, because of a default. Never be tempted by the one day offers. The dealers will be there tomorrow!
Some car manufacturers offer special discounted loans even for their used makes and models, especially towards the end of the financial years. These special deals will enable you to pay the minimum loan establishment fees, and lower interest rates through the life of the loan. As always, do your research carefully. After all, this is your money!