Many young people would not be able to afford their first car if it weren’t for the availability of used car financing. They just don’t have the cash to buy the car outright. Fortunately, obtaining such financing at very reasonable interest rates is not difficult. You just need to do your research and follow these simple steps.
As you browse used car listings, you’re bound to come across what appears to be absolutely fantastic auto loan availability from the car dealers themselves. You will see zero percent offers, low paying offers that seem too good to be true. Of course they are! These ads are meant to trick you into going in and applying and ending up getting a loan for 10 to 18 percent off standard rates! Yes, interest-free offers are available, but only if you have perfect credit. Most used car buyers do not fall into this category. In general, used car loan interest rates exceed those of new cars by several percentage points on average.
One way to mitigate this cost is to obtain your loan through a dedicated finance company rather than through your normal car dealer or bank. These institutions generally have more liberal lending policies. However, any lender will require proof of the car’s value and a 20 percent down payment. This is normal and should not be considered a suspicious request. Both regulations are designed to give the lender a margin of safety, should the loan default. If that happens, the lender’s only recourse is in the collateral, which is the car. So they naturally have a vested interest in knowing that you didn’t overpay for the car, and that at least 20 percent of its value remains even if default occurs immediately. This is also an advantage for you. There is someone looking over your shoulder at the transaction, making sure it is a respectable deal and price for the vehicle in its current state and condition.
Before you apply for financing, run a credit check on yourself. This will help you determine what you should be able to afford and what you should offer. Sometimes before you really get started, you may realize that a used car loan isn’t affordable for you. This could be due to a low credit score, inability to meet down payment requirements, or insurance issues. This is important to know, because online institutions will tempt you with one-day deals. Do not be fooled! Despite their dire warnings about offer expiration, these lenders will be there tomorrow with another fantastic offer for you! Wait until you are comfortable with the amount and terms. It’s not worth the devastation a default loan can wreak on your credit history to take it now when you’re not sure you can repay it as required.
Another precaution with auto loans and any other financial transactions: keep all your documents in good order. If you got the loan online, print a copy of everything and keep it in a safe place. Never sign anything you do not fully understand. Ask questions until you understand. Talk to an outside professional to get a different point of view. It is your responsibility to protect your own interests. Don’t expect the lender to do it for you. This is the kind of thinking that led to the current foreclosure crisis in the United States.
One last piece of advice: As soon as you get your used car loan, consider refinancing it, especially if you couldn’t get an interest rate of zero to three percent. Refinancing sites often have calculators so you can calculate your total savings. If you can get a percentage point under your current contract, it’s worth it.
