When looking for a used car, there is always the apprehension that you will not be able to find a loan, or that if you are able to find a loan, you might not get the best rate. You’re concerned that this will not end up being a smart purchase, because who wants to pay lots of interest for no reason? So how do you go about finding a loan that suits your budget when looking for used cars for sale, and where do you even start when looking for financing? Before you set foot on a dealer lot, you should do your homework. A little research will go a long way in securing a loan you are happy with. It’s important to walk into the dealership prepared so that you know what to expect, and also so that you know a bad loan when you see one.
While there are many dealerships out there who are trustworthy and who are going to work hard for you to find the best loan, this is also an area where they stand to make a decent profit. Dealers make money through your financing, so comparing loans and knowing what a fair loan looks like is one of the most important things to familiarize yourself with before you even start to look for your next vehicle.
Check Your Credit Score
The first step is to know your credit score. This number plays an important role in determining your interest rate and is also the primary factor in determining if you are eligible for a loan. There are many sites where you can check this for free. Once you know your credit score, it might be helpful to take the necessary steps to improve your credit score. The better your score, the better and more favorable loan you will be offered. There are many ways to improve your credit score, so it is always recommended to start this process early so that you have time to build up your credit before making the purchase. Scores range from 300 to 850, and even if you have poor credit, you will most likely still be able to get a loan, but the rate will not be as good as when you have good credit.
If you have poor credit, there are other options available to you if you do not want to secure a loan with a high-interest rate. You can always find someone to cosign on the loan with you. This will ensure that you can find a good rate if they have good credit. You can also pay cash and avoid the loan process altogether. No matter what you decide, it’s important to know how much you can afford.
Do Your Research
Most people, when looking for used cars for sale, do not consider the loan until they are already in the dealership. This can be a big mistake. While some dealerships offer excellent terms, you can’t expect them to always have the best options for your financial situation. This is why it is important to do your due diligence. You will want to shop around at other lenders so that you have a pre-approved financing rate in place before you walk through the door of the dealership. This will ensure that the dealership will offer you a competitive rate. If you do not have a rate in place, you might get a different offer from the dealership. But if they have to beat another rate to secure your business, then you will be one step ahead of them.
Another thing that this guarantees is that the focus of the negotiations will be on the purchase price of the vehicle. Often, dealers will use the finance rate as a negotiation tool to distract you from the vehicle’s price. Between your trade-in vehicle, the interest rate, and the price of the vehicle, they can make it seem like you are getting a good deal when, in fact, you are not. If they present an acceptable monthly payment, you might agree to it, regardless of the purchase price, because it can become confusing, and by then, you are probably tired of negotiating. Having an interest rate in hand gives you the confidence to negotiate on your terms.
There are many places where you can pre-qualify for financing, and many of these places specialize in loans for first-time car buyers and people with bad credit. You are more likely to find a better rate through one of these lenders than you are through the dealership. And while it is tempting to focus on the monthly payment of the loan or the interest rate, these should not be the only things you look at when comparing offers. Be sure to also look at the total cost of the vehicle. This includes the total cost of all of the payments on the life of the loan, plus any down payments and fees. You will also want to avoid variable-rate auto loans and should try to find fixed-rate loans.
Things to Look Out For
When you are in the market for used cars for sale, there are several things you should watch out for. Avoiding these traps can end up saving you lots of money down the road. Auto dealerships, especially those who do not have the best reputation, often do not have your best interest in mind. They stand to make a lot of money off financing your vehicle, and will more often than not offer you a loan that benefits them and does not consider your long-term future.
One of the most common things to look out for are long-term loans. While it might be tempting to stretch out the loan terms so that you have a lower monthly payment, this is not always the best option for your long-term financial health. It’s actually one of the riskier moves you can make. Over the life of the loan, you will be paying much more than if you kept the loan terms shorter. You might be excited that you qualify for such a loan and excited that you will not have to budget as much into monthly finances for payment, but over the life of the loan, you will be paying much more for the vehicle. You also risk the vehicle depreciating at a rate that outpaces the rate you pay it back. You could end up owing more than the vehicle is worth, which is never a situation you want to find yourself in.
Another thing to be wary of when looking for a used car auto loan are deals that seem too good to be true. If a dealer claims they can finance anyone, regardless of credit, often the loan terms will not be what you are looking for and will end up costing a great deal more than if you secured the loan elsewhere.
Used cars for sale at dealerships generally have higher interest rates than new cars, and this is because they are considered more of a risk by lenders. Buying a used car with low miles will often mitigate this as lenders will sometimes offer new-car rates for these vehicles, especially if the vehicle is a manufacturer-certified used car.
Remember, the most important part of shopping for used cars is to do your research. This will save you lots of money down the road.