How To Get The Best Financial Scheme To Finance A Used Car

You are in the market for a used car because you want to save a few thousand dollars. However, the financing options for a used car can be more expensive than the options for a new car.

To banks, and other financial services providers, used cars carry more risk of damage and depreciation. Therefore, you are most probably going to get a short-term high interest loan.

That said, with adequate preparation, persistence, and patience, you can still get a favorable used-car loan.

Find a used car with less risk

The main reason used-car financing is more expensive is the car’s resale value. It is not easy to predict the depreciation of a used car.

However, lenders might treat some used cars as new. A used car with a recent year of manufacture and low mileage will attract similar loan conditions as a new car.

So, if you have to buy a used car, make sure it is not very old. Also, check for other details that increase the risks involved, such as safety ratings, recalls, and sales history. All these details you can get by obtaining the vehicle history report, which only requires the car’s VIN.

Know your credit score and repair it

No financial institution will give you a loan without looking at your credit score. Of course, the higher your credit score, the better the loan terms and the higher the amount of money you can borrow.

The credit score is reflected in the credit report. You get credit reports from the three major credit bureaus: TransUnion, Equifax, and Experian. However, you are entitled to a free credit report every year. When you get one, check that there are no errors that are affecting your credit score negatively.

Get a direct loan from a financial institution

If you have good credit, the best financier is your bank. That you are a customer might attract even better terms.

But, you are in the market for a used car probably because you have bad credit. Still, you have other options:

Online lenders: These lenders tend to not concentrate much on the credit score. However, they give short term loans and may not be ready to finance a car with huge mileage (over 100,000 miles) or a car that is old (more than five years).

Credit unions: Credit unions offer better interest rates compared to banks. With a bad credit score, aim for small-to-midsize credit unions, as they are more likely to listen to your financial woes.

You should compare different lenders and choose the one that is providing favorable conditions.

Consider dealer financing

If getting a loan is proving difficult, consider dealership financing. However, with dealer financing offers, you might not have much choice over the brand and model. Also, your credit score determines what kind of offers you qualify.

Another downside to dealer financing is high interest rates. They often advertise their offers as monthly payments. If you compute the total amount you will pay, you might find it to be way higher than the price of the car.

To get a better deal at the dealership, offer a significant deposit. Also, go for a shorter repayment period to reduce the interest rate. Continue reducing the amount of financing the dealer offers by paying extras such as sales tax and registration fee in cash.

Final thoughts

Used cars have a lower price tag. But, getting an excellent financial scheme for a used car can be problematic. You need to understand your credit score. If it’s too bad, you might want to postpone that purchase until it’s a little better. Still, even with an average-to-low credit score, you will find a few financing options. However, do not take a loan you are not sure you will be able to pay. Why hurt your credit score further on a used car?

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