Financing a used car with a car loanNo Comments
For most people, buying a car, new or used is major expenditure. Dealers offer helpful financing options for new cars but there isn’t the same type of widespread dealer financing for used cars available. Coming up with the cash to purchase a used car can put a strain on a budget. There are several financing choices for borrowers with good credit ratings. It takes a little homework and administrative effort but getting financing lined up in advance, can make your car buying experience much more stress free.
Generally the process of applying for a used car loan is a matter of first identifying the lender. You can either go to your bank, a local credit union or an online auto loan broker. They will check your credit score and the approval process can take anywhere between a few hours to 10 business days.
Unfortunately, receiving a loan for a used car is a bit more difficult than receiving a loan for a new car. The lender looks to the car as security for the loan, so the value of that asset will be an essential part of qualifying for a loan. Obviously, a used asset is not as attractive as a new one especially in cases where the manufacturer’s warranty has expired. Without this coverage, the owner and their insurance have to cover repair costs. In case the car breaks down before the lender is paid back the full loan amount, and a borrower defaults on the loan, the remaining asset value may not be sufficient to cover the balance and lenders can experience losses.
Another reason why lenders prefer to lend money for new, rather than used car has to do with assessing the value of the car. It’s hard to predict the depreciation value for a car that is over 4 years old, the type of driving it has experienced and any mechanical issues. In order to compensate for any unknown problems or defects, and to protect themselves, lenders introduced certain protection standards.
One of those protection rules doesn’t allow lenders to lend money for a car that is older than four or five years. Additionally, lenders charge at least a 2% higher APR than they would charge for a new car.
Therefore, it is important to keep the length of the loan as short as you can afford, in order to save money. Shorter loan terms come with lower interest rates but with higher monthly payments.
In conclusion, getting a loan for a used car follows the same process as getting one for a new car. Make sure you have a good credit score, your car is not older than four years and try to keep the loan period as short as possible. Happy loan hunting!