How Does a Used Car Loan Work?
Used Car Lot (Photo credit: Hugo90)
When it comes time to buy a car, many people prefer to purchase a used vehicle because they can frequently get one for less money than a new one. Fortunately for them, there are a lot of used cars available thanks to the growing popularity of leases. A loan may still be necessary, and while used car loans are very similar to a new car loans, there are a few differences of which a consumer should be aware.
Finding the right used car requires the same type of research that locating the best new vehicle does. When it’s found, the customer will then need to come up with a way to finance the purchase.
*Down payment – Just like a new car loan, financing the purchase of a used vehicle will require a down payment. It is important for the potential buyer to know how much they can afford to put toward the loan at the start. Typically, this amount should be 10 percent to 20 percent of the purchase price. This amount is taken off the loan amount, with the rest being financed over a set period of time.
*Life of the loan – While a new car loan will usually last around five years, most loans for a used car will last from 12-72 months.
*Interest – The interest rates on used car loans will often be higher than those for new vehicles. This is due to the fact that the loan amount will probably be less, though the lender still has certain processing fees that it needs to spread over the life of the loan. Since the loan amount will be less, and the life will be shorter, the lender needs to use a higher interest rate to make money.
*Where to get a loan – Dealerships will be able to provide a loan for any used car they sell, but it is often better to work with a lending institution to procure a guaranteed loan. This can be shown at the dealership and demonstrates a readiness to buy. It can also increase the customer’s bargaining power. It lets salespeople know the potential buyer is serious and not merely shopping around. In addition, the dealership may be tempted to offer a lower interest rate or better deal. The guaranteed loan is not a commitment, so the customer can choose to accept a better offer if it comes along.
*Internet – Researching a used car loan on the Internet can lead to better deals since these companies often have lower overhead costs than traditional brick and mortar facilities.
Finding the right used vehicle can be just the start of the purchase process. A potential buyer needs to know how much they can afford to put down on a loan, but should also be aware the interest rate likely will be higher than that used for a new car loan. Finding the right terms for a loan is just as important as the vehicle research.
Author Bio:
Melanie Lewis writes for a site that has more details on used car loan rates and advice on things to consider before purchasing a used car.
Category: Automotive
