Buying a used car is often the best way to get a good model vehicle while saving on the overall price. However, used cars that are only a year or two old are harder to afford as one lump-sum payment. In these situations, it is important to consider finance options for used cars. Here is a look at the top ten tips for financing a used car:
Learn About your Credit Score
The last thing you want to do is enter a car dealership without any knowledge of your credit score. In this situation, the dealer could tell you that your score is too low to afford competitive interest rates. It puts you in the tough position of accepting a bad deal because you did not prepare yourself beforehand. Check your score online and see how it compares to scores that are considered bad, average or good. If your score is not good, take the necessary steps to improve the score for the long-term.
Paying your bills on time, managing all credit card payments without incurring late fees and avoiding defaults on any personal loans or mortgages are the best ways to maintain a competitive credit score.
If your Credit Score is Weak, Find Loan Quotes before Visiting a Dealership
Find some auto loan quotes online, talk to your local bank or credit union about the possibility of getting a loan with competitive interest rates. This is helpful because dealerships are always looking to get the best deal for themselves and their clients. If you have legitimate offers in hand, they are less likely to pull a fast one on you.
Choose Shorter Loan Terms
When buying a used car, the total price is not as high as a new car. This means you can afford to keep a shorter loan term, which results in lower interest rates. It might mean higher monthly premiums, but you save a lot of money in the long run.
Try to Place 20 Percent as a Down Payment
Getting your down payment to 20 percent plays another crucial role in getting you a better loan deal. Even if you have great credit, which leads to dealerships offering $0 down deals, insist on the higher down payment to keep your loan at a manageable level.
Pay for any Extra Charges in Cash
It is common for dealerships to try and get registration or documentation fees and taxes included in your loan agreement. This is helpful to people strapped for cash in the short-term, but only increases the value and interest of your loan, while keeping your used car’s value the same. Get those charges out of the way and keep the loan solely for repayments on the car’s value.
Look into Gap Insurance
This type of policy helps cover the gap in value between what the car is worth for insurance purposes and the amount of money you owe for your car loan. With used cars, the chance of it not working in a year or two is higher than a new car, and you do not want to end up owing a few thousand dollars on something that does not even run anymore. This insurance is especially useful if you are signing a policy with higher interest rates, or with a time-span of longer than three or four years.
Refinance in the Event of a Mistake
If you made an error of judgment and signed a bad loan deal for your used car purchase, it is not the end of the world. There are options to refinance car loans with different institutions. If you have good credit and the car is not five or ten years old, this makes it a lot easier to get a competitive refinancing deal. Auto refinancing deals for used cars work in a similar manner to mortgage refinancing agreements.
Do Not Ignore Credit Unions
People often think of credit unions as a last resort when they are getting a used car. This is a mistake. Credit unions often offer better deals than both banks and dealerships. Talk to your local credit union in detail about the car you want, how much you can pay up front and the length you want for the loan. They will offer you the most competitive terms possible. It takes longer to set up a loan with a credit union than with a car dealership, but a little bit of legwork can save you thousands of dollars in the long run.
Research and Take Safety Precautions
Buying a used car is an important step, because you are trusting that the machine runs at an optimal level despite not being brand new. Conduct significant research into used cars that maintain their performance levels over their lifetime. Even if a car runs well when it is brand new, it is not always guaranteed to maintain that consistency after five or six years.
Make sure you have a pre-purchase inspection completed before signing any paperwork on a car. Buying used cars from dealerships is a lot safer than person-to-person transactions, but it still includes risk. Even though these independent inspections can cost a few hundred dollars, they can save you thousands of dollars in the future. Inspectors know what to look for in used cars, in terms of warning signs regarding the car’s health and potential future problems.
If you are prepared to finance a used car purchase, it is important to have more than one option. Sometimes the car you want is not available at a dealership, or the model they have does not pass your independent inspection. Instead of scrapping the idea altogether, make a list of four or five cars that fit your price range. This way, if one of them is not available or not suited to your needs, there are fall back options for you to discuss with the dealership.