Buying a car is expensive, which is why a loan is usually required. Most financial institutions will provide information about auto loans assuming the car is brand new, but the process is very similar for used cars as well. Here are some things to keep in mind when financing a used car.
How does it work?
Financing a used car is very similar to financing a new car. Most banks that offer loans for a new car will offer used car loans as well. Other than letting the bank know about the loan being for a used car, not much is different. The process of getting a loan for a used car includes:
- Obtain a copy of your credit report and other financial information before applying for financing.
- Call local banks and credit unions to determine their standard loan terms for used car loans. Cars older than five years may only be eligible for 1-year or 2-year loans instead of the standard 5-year loan.
- Get quotes from multiple institutions to compare their interest rates.
- Take a pre-qualification letter with you into the dealership.
- Give your lender information about the car you have purchased. They will need to know the make, model, and VIN along with other information. After this, the dealer will originate your loan.
Can you get a loan from the dealer?
Getting a loan for a used car directly from the dealer is an option as well. This process is also fairly simple. Though you should be aware that dealers may offer loans with padded interest rates in order to collect an extra profit. The important thing to do for dealership loans is to try and provide a down payment of at least 10% of the total price of the vehicle and be sure to research competitive rates for your credit score. Being prepared in this way can help you to negotiate the best rates for your dealership loan.
What if you buy from a private seller?
Using a loan to pay for a used car from a private seller is a slightly different process than going through a dealership. The biggest difference is that lending institutions will often have a minimum amount that a private auto loan must exceed in order for them to approve the loan. This is to protect the institution from accepting loans that will not make a profit. The process will typically involve these steps:
- Determine what size loan you may need.
- Prepare copies of your credit report and apply for financing to find your best rates.
- Take a pre-approval letter while shopping for you car, and negotiate the price to get it where you want it.
- Once you know how much you need, obtain a check for that amount from the lending institution.
- Exchange the check to the seller for the vehicle and title.
- Exchange the title at the DMV for a title in your name.
Featured Image: Thinkstock/RossHelenPosted on May 5, 2023