Many young people cannot buy their first car without the availability of used car financing. They don’t have the money to buy the car outright. Fortunately, it is not difficult to obtain such financing at very reasonable interest rates. Just do your research and follow these simple steps.
As you browse used car ads, you are sure to come across what seems like a great car loan availability from the car dealers themselves. You’ll see zero percent offers and low paying offers that seem too good to be true. Of course they are! These ads aim to mislead you, make you come and ask, and end up getting a loan at 10 to 18 percent above 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, interest rates on used car loans exceed new car rates by several percentage points on average.
One way to mitigate this cost is to get your loan through a dedicated financing company instead of your regular car dealership or bank. These institutions generally have more liberal lending policies. However, any lender will require proof of the vehicle’s value and a 20 percent down payment. This is normal and should not be considered a suspicious request. Each of these regulations is designed to give the lender a margin of safety, should the loan default. If that happens, the lender’s only recourse is the collateral, which is the car. So, they naturally have a vested interest in knowing that you didn’t pay too much for the car, and that at least 20 percent of its value remains even if default occurs immediately. This is actually an advantage for you as well. There is someone who looks at the deal over your shoulder, making sure it’s a respectable deal and priced for the car in its current condition and condition.
Before applying for your financing, do a credit check on yourself. This will help you determine what you should be able to afford and what to give. Sometimes you may realize before you really get started that a used car loan is not affordable for you. This could be due to a low credit score, inability to meet down payment requirements, or insurance concerns. Knowing this happens is important, because online establishments will entice you with one-day offers. Don’t fall for it! Despite their dire warnings that the offer is expiring, these lenders will be there tomorrow with another great offer for you! Wait until you are comfortable with the amount and terms. It is not worth the devastation a loan default can play on your credit history to take now when you are not sure you can pay it off as required.
Another caveat about car loans and any other financial transactions – keep all your paperwork in order. If you got the loan online, print out a copy of everything and keep it somewhere safe. Never sign anything you don’t fully understand. Ask questions until you understand. Talk to a third-party professional to get a different perspective. It is your responsibility to protect your interests. Don’t expect the lender to do this for you. This is the kind of thinking that led to the current mortgage crisis in the United States.
One final tip: Once you get your used car loan, consider refinancing it, especially if you can’t get a zero to three percent interest rate. Refinance websites usually have calculators so you can work out your total savings. If you can get a percentage point under your current contract, it’s worth it.