Financing a used car with a used car loan may sound simple in theory, but it has several ramifications that must be considered beforehand. Not planning ahead or doing your research can make it difficult later on to repay the loan balance and can even endanger your financial wellbeing. Knowing the ins and outs of used car loans also improves your chances of getting your loan request approved by a traditional bank or a private lender. Here is everything you need to know about this financial product.
Credit Score
First things first, know where you stand financially. It’s never a good idea to approach a lender, regardless if it’s a bank or private firm, without having a clear understanding of your financial health. At the very least, know what your credit score is. The higher your score is, the higher the likelihood of getting approved for a used car loan. Moreover, a higher score gives you more wiggle room to negotiate your car loan’s annual percentage rate and the corresponding repayment terms.
Annual Percentage Rate
According to Lantern by SoFi, a car loan apr pertains to the total cost of borrowing money. The number includes both the amount of money you are requesting from the lender plus any interest and lender fees attached to it. As a general rule of thumb, the lower the APR on a car loan, the less expensive it is to borrow the money over time. Even a percent difference in loan APR can translate to thousands of dollars when magnified to a typical 5- to the 6-year car loan.
Lenders
Researching your financing options before you even visit a local dealership is important to find the lowest auto loan rates in the market. Although the dealer financing plan you are offered on-site may be reasonable, dealers have no incentive to provide you with low financing rates unless you’ve already secured a pre-approved offer that they need to beat. Call up local lenders to apply for financing and potentially get pre-approved. You can also find some financial institutions that run special programs for first-time auto loan consumers.
Used Cars
After you’ve secured the best auto loan possible for your financial situation, you can now start researching used cars with more confidence. The traditional car buying process required you to physically visit different dealerships to find available inventory. Nowadays, however, you can find used car options within X miles of your location online.
Loan Comparison
The used car loan market is a saturated one. Simply searching for one online will later result in getting target markets for dozens of local car loan options from various sources. To compare your financing options objectively, use the loan’s down payment requirement, APR, term, and monthly payment amount as a criterion.
When searching for the best-used car loan, one cannot afford to rush into the process. Taking the time to find a used car loan that has the lowest APR and fairest repayment conditions makes it easier to repay the entire balance over time.
Lisa has a Bachelor’s of Science in Communication Arts. She is an experienced blogger who enjoys researching interesting facts, ideas, products, and other compelling concepts. In addition to writing, she likes photography and Photoshop.