Car Financing: Everything You Need to Know About Interest Rates & How to get a Loan for a Used Car
Getting a loan for buying a new or pre-owned vehicle is still a tedious process. You’ll still need to review your credit and budget, apply for the loan, and compare various offers for the best deal.
There are certain differences between getting a loan for a used car and a new vehicle that you should know. But how do these two differ, and how can you ensure you get enough funding to get your hands on your next ride?
This blog discusses how to get a loan for a used car, tips to get approved, and the common interest rates for pre-owned vehicles.
How to Get a Loan for a Used Car
Know your credit score.
The first step in getting financing for a pre-owned vehicle is to check your credit score. What are the advantages of having a good rating?
- Higher chance of approval: Having a good credit score improves your chances for funding, as it indicates how likely you are to repay a loan.
- Lower interest rates: The higher the credit score, the better the interest rate and deals you’ll get.
- Lower down payment: When you qualify for a loan, you are not required to make a large down payment. You may still consider making a larger one as it will still give noticeable differences in the future.
- Lower monthly dues: Since you have a low-interest rate, you spend less on your monthly payments. Instead, you can allot your budget for other priorities, such as upgrades and maintenance.
Don’t be disheartened if you have a low credit score. It won’t necessarily prevent you from getting a loan, but it will let you have higher interest rates and payments down the line. Moreover, most states also give higher car insurance rates for people with bad credit.
Lenders categorize customers depending on their credit scores. You want to get at least a prime credit to get a good deal.
- Super Prime: 781 to 850
- Prime: 661 to 780
- Non-prime: 601 to 660
- Subprime: 501 to 600
- Deep subprime: 300 to 500
Determine your budget.
Buying and owning a car are two different things regarding the budget. While considering up-front costs, sales tax, and monthly fees, you must remember recurring fees after purchasing.
- Maintenance and repairs: This should be your top priority to ensure your vehicle lasts longer. Schedule regular visits to your mechanic to know if everything is in check. Doing so will also inform you of damaged components, so you can immediately replace or repair them.
- Registration: You must register your pre-owned vehicle under your name.
- Gas, parking, and tolls: Daily vehicle use will include these expenses.
Pro-tip: Follow the 20/4/10 rule for your budget. This rule means you can afford a loan if you have enough cash for a 20% down payment, can pay it within four years, and spend 10% or less of your take-home pay on expenses for your ride.
Research the vehicle’s market value.
Determining the value of a used car can be challenging. Dealers will always add a markup to the price of their products, while private owners tend to overvalue their vehicles for sale.
Know a car’s accurate price by researching its market value. Read industry guides for a reference to negotiate a good deal with sellers. You can also look at its vehicle history report, check its VIN, or have an expert mechanic determine its true value. Doing so reduces your chance of paying more above its acceptable market price.
Get pre-approved.
The secret to getting a loan for a used car is applying to multiple lenders. Instead of going with one proposal presented to you, this widens your options and lets you compare the various offers you receive. It also helps you negotiate better terms to get the best deal out of your purchase.
How Much is the Interest for a Car Loan?
The interest on a car loan depends on two factors: your credit score and the age of the vehicle.
Generally, older cars have higher interest rates as they are more likely to break down and depreciate more. Moreover, a high credit rating helps you qualify for the lowest auto loan interest rates.
For instance, a 48-month used vehicle gives you an interest rate of 7.06%, while a 36-month one is lower at 6.77%. Drivers with super prime, non prime, and deep subprime credit ratings have 3.69%, 9.81%, and 19.81% interest rates, respectively.
Where Can I Find Used Car Financing?
Are you still confused about how to get a loan for a used car? There are different entities you can consider to help fund your purchase.
- Banks and credit unions: These establishments often offer hard-to-beat loan rates and give relationship discounts to existing customers.
- Auto manufacturers: You can get great incentives on your pre-owned vehicle when you get a loan from an auto manufacturer.
- Dealership: It is the most convenient way to get financing because it’s also where you’ll buy the car. However, you should expect to have high markups on loans if you decide to get your car from dealerships.
Quick Tips: Getting a Loan for a Used Car
Review the VHR.
The vehicle history report gives you an idea of how the ride was handled by its previous owner/s. It records its past sales, repair history, accidents (if any), and regular maintenance it has undergone.
Get an expert mechanic to help.
Apart from the VHR, you can also consult an expert mechanic that isn’t affiliated with the seller to inspect the vehicle. Doing so gives you an unbiased view of the car’s condition. While they may be pricey, they can save you a lot of money in the future, as you already address concerns such as worn-out parts and damaged components, which you will still need to take into account once you already own the vehicle.
Negotiate your trade-in.
Don’t hesitate to negotiate your purchase. Most often than not, dealerships and private sellers increase their asking as they know buyers will try to swing for a lower price. It also helps if you research the vehicle's value in the market so they don’t take advantage of you.
Consider a certified pre-owned vehicle.
CPOs have to undergo a thorough inspection before they are certified and put up for sale. You can expect them to be in better condition as they have limited mileage and minimal wear and tear.
Bottom Line: Maximize Loans and Interest Rates for a Used Vehicle
Having a good credit score and finding the right interest rates are vital in purchasing a brand-new or certified pre-owned vehicle with car financing. It helps to maintain a high credit rating to get the best deals and enjoy bigger savings. Don’t limit yourself to one loan option. Instead, seek different lenders who can help you purchase your next ride.
Buy a Pre-owned Vehicle with Car Financing
Getting the car of your dreams is easier when you have car financing to help fund your purchase. It takes a lot of work to get the best deals, such as securing a good credit score and finding the lowest interest rate. Negotiating better terms lets you drive away in your newly purchased vehicle without breaking the bank.
Get buying tips for pre-owned vehicles by visiting the VIP Automotive Group blog.