How to Finance a Used Car
When it comes to financing a used car, you have a few options. These include banks, credit unions and online lenders.
You should get pre-approved before shopping around for a used vehicle. This will help you comparison shop for better deals on financing.
Get Pre-Approved
Getting pre-approved for a car loan before you start shopping for a used vehicle can save you a lot of time and money. It also helps to put you in a position of strength when it comes to negotiating with dealers.
When you’re pre-approved, you know exactly how much you can borrow and what the interest rate will be. Having that knowledge ahead of time will help you avoid the salesman’s temptation to upsell you on extras, such as GAP insurance and extended warranties.
It also allows you to shop within your budget and eliminate vehicles that are out of your price range. This also helps you avoid falling in love with a vehicle that you cannot afford.
You can get pre-approved for a new or used car through banks, credit unions and other lenders. However, you’ll need to check with each lender before you begin the process to make sure you’re able to meet their requirements.
Generally, consumers will need to submit personal information, income and debt payment details when applying for pre-approval. They will also need to provide information on the type of vehicle they’re interested in, including its mileage and age if purchasing a used car.
Some lenders also require a minimum credit score before issuing a pre-approval, so be sure to verify the lender’s requirements prior to submitting your application.
Getting pre-approved for a car also helps you dodge upsells at the dealership, according to Nerdwallet. The dealer’s finance department often will upsell customers on additional features, such as GAP insurance and extended warranties, if the buyer is not pre-approved for financing.
Shop Around
Shop around for the best financing option for your used car. There are a lot of lenders to choose from, and each one has a different set of requirements. Some offer a better rate or a slicker application process, so it’s important to shop around and compare your options before you make a final decision.
You can shop around for financing at the dealership, or you can go to a lending institution that specializes in financing vehicles. While this will likely be pricier, it can help you get a lower interest rate or more flexible terms than a typical dealer financing option.
There are many sites that will show you the best rate for your particular situation, and it is also possible to apply for loan applications from multiple lenders in a single sitting. This can be a great way to find the most competitive interest rate for your loan and reduce your stress levels.
The most effective shopper, of course, will have a solid budget in hand. It’s also smart to look at the vehicle you want to finance and determine how much it will cost, including any associated costs such as insurance, registration and taxes.
This will help you decide whether you need to put some of your savings into a down payment on the car you choose. The best way to do this is by using a credit card that offers purchase protection. This type of card is particularly useful when it comes to a new vehicle because it can help you protect your investment if the car is a dud. The card may even have an introductory interest rate that is lower than your credit card’s standard advance rate, which can save you money in the long run.
Make a Down Payment
When you purchase a used car, you may need to finance some of the cost. This can make the entire process of purchasing a vehicle very costly, and it’s important to find ways to save on financing. One way to do this is by making a down payment on the vehicle.
A down payment is a portion of the vehicle’s total price that you put down up front, and it can be accepted as cash, a trade-in or an automaker rebate. These down payments can be a good way to get lower monthly payments and less interest on your loan.
The down payment will also help you avoid being upside down on your loan, which means you owe more on the car than it’s worth. This can happen if you don’t make a large enough down payment, as a new car typically depreciates quickly and can lose around 20% of its value in the first year.
Generally, down payments can range from 10 to 20 percent of the vehicle’s purchase price. These amounts are generally considered minimums for new vehicles, but a smaller down payment could also be helpful if you’re on a budget or want to take advantage of any rebates available.
Down payments are typically made with a personal check or money order, but dealerships can accept credit cards and trade-ins as well. It’s a good idea to get a receipt for your down payment, so it can serve as evidence if something goes wrong. If you choose to pay with a credit card, be sure to read the terms of your contract. It’s also a good idea to shop around and compare lenders to find the best terms and rates for your specific needs.
Shop for a Certified Pre-Owned Vehicle
Certified pre-owned (CPO) vehicles are a great option for car shoppers who want the benefits of a used car without the cost. These cars have been inspected and reconditioned to meet strict manufacturer standards, and they often come with additional perks like roadside assistance, loaner cars and trip interruption protection.
In addition to traditional auto dealerships, certified pre-owned vehicles can also be found at franchise dealerships for specific brands and rental car companies. These dealers often have a larger selection of CPO vehicles than traditional used car dealerships.
If you want to shop for a certified pre-owned vehicle, use the Kelley Blue Book Car Prices tool to find local dealers that carry certified cars. This tool allows you to search for certified cars by year, make and model and will display the prices you can expect to pay for each one.
Many CPO cars also come with an extended warranty from their original manufacturer. These warranties can be a significant benefit to car buyers, as they usually offer additional coverage for years or thousands of miles after the original warranty expires.
While they may cost more than non-certified used cars, a lot of car buyers believe that the peace of mind that comes with driving a certified pre-owned vehicle is worth the extra price. This added cost can vary by make and model, but Black Book notes that a CPO vehicle may cost about 3.5% more on average.
Aside from these costs, a certified pre-owned vehicle can also have a lower depreciation rate than a typical used car. The average used car will depreciate by about 39 percent over three years, but a CPO vehicle will depreciate by less than 10 percent. Plus, CPO cars will hold their value better after they are purchased, which can save you money in the long run.
Get a Vehicle Inspection
If you’re not sure whether or not you’re getting a good deal on a used car, consider going for a pre-purchase inspection. This can save you money in the long run, as it can help you avoid buying a vehicle that needs major repairs and maintenance.
The inspection process can include inspecting various systems of your vehicle. Technicians will check your brakes, suspension and tires to ensure that all of the components are functioning properly. They will also check your seat belts to make sure they’re in good shape.
Your mechanic will probably also inspect your rear and side view mirrors, which are essential for keeping an eye on what’s coming up behind you. Without them, you’ll have no idea when it’s safe to change lanes or get out of harm’s way.
Finally, your mechanic will check the condition of your engine and other mechanical components. They’ll look for signs of wear and tear, leaks, broken parts, rust or any other issues that could affect your safety or the condition of the vehicle itself.
Typically, a pre-purchase inspection costs anywhere from $100 to $150, depending on the experience of the mechanic and the age of the vehicle. This cost is not a part of your financing, so don’t be afraid to budget for it separately.
Before heading to your inspection, be sure to gather all of the necessary paperwork. This includes your car registration and any repair receipts for recent work that you’ve had done on the vehicle. This will make the inspection process go more smoothly. It’s also a good idea to take your car for a test drive so that the inspector can assess its handling and other aspects.
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