Many young people would not be able to afford their first car if used car financing was not available. They just don’t have the money to buy the car. Fortunately, obtaining such financing at very reasonable interest rates is not difficult. You just need to do your research and follow these simple steps.
As you browse the used car classifieds, you’re bound to come across something that looks like an absolutely fantastic availability of car loans from the car dealerships themselves. You see zero percent offers, low payment offers that seem too good to be true. Of course they are! These advertisements are designed to trick you, make you come in and apply and eventually get a loan at 10 to 18 percent above standard rates! Yes, interest-free offers are available, but only if you have perfect credit. Most used car buyers do not fall into this category. In general, interest rates on used car loans average a few percentage points higher than those on new cars.
One way to limit these costs is to get your loan through a special financing company rather than through the car dealership or your normal bank. These institutions generally have a more liberal credit policy. However, each lender will require proof of the car’s value and a 20 percent down payment. This is normal and should not be considered a suspicious request. Both regulations are designed to give the lender a margin of safety should the loan default. When that happens, the lender’s only recourse is the collateral, the car. So, of course, it’s in their best interests to know that you haven’t overpaid for the car and that at least 20 percent of its value is retained, even if the default is immediate. This is actually also an advantage for you. There is someone looking over your shoulder at the transaction and making sure it is a respectable deal and price for the vehicle in its current state and condition.
Before you apply for your financing, do a credit check on yourself. This will help you determine what you should be able to afford and be offered. Sometimes before you actually start, you realize that a used car loan is not affordable for you. This could be due to a low credit score, inability to meet deposit requirements, or insurance issues. It is important to know this upon entry, as online establishments will entice you with one-day offers. Don’t fall for it! Despite their dire warnings that the offer is ending, these lenders will be there tomorrow with another fantastic offer for you! Wait until you are happy with the amount and terms. It’s not worth the devastation a default can play on your credit history to take it now if you’re not sure you can pay it back as required.
Another word of caution with car loans and other financial transactions: keep all your paperwork in good order. If you got the loan online, print out a copy of everything and keep it in a safe place. Never draw anything you don’t fully understand. Ask questions until you understand. Talk to an outside professional 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 final piece of advice: Once you get your used car loan, you should consider refinancing it, especially if you can’t get zero to three percent interest. Refinance sites usually have calculators so you can calculate your total savings. If you can get a percentage point under your current contract, it’s worth it.