Six Simple Steps to Financing a Used Car
A lot of smart motorists prefer to buy a used car rather new for a number of sound economical reasons. Most people know that a new car loses some value as soon as you drive it away from the showroom, so it make sense to buy a nearly new car at a lower price.
Even if you are buying a used car, you will probably need some finance to help you complete the purchase, especially if you are buying nearly new and a car with badge that still attracts a hefty price tag in the used car market. Here are some simple steps to help you finance the vehicle that you want to buy.
Check out your credit status
The best starting point when you are trying to arrange finance is to establish how good your credit rating is and what people who have already lent you money in the past think about you. Your credit score is very important to know because it will be a good guide as to whether you will be able to get a loan easily and what interest rate you should expect to pay. The main sources where you can pay a small fee to view your credit file and payment history are Checkmyfile, Experian, Callcredit and Equifax . The higher your score, the lower the rate of interest you should be asked to pay and of course if you have a slightly patch credit record then you can expect to pay a slightly higher rate of interest as you are perceived to be a higher risk of defaulting on the loan.
Apply for a loan yourself
Once that you have established your credit profile, you may want to try and obtain a loan yourself rather than leave it up to a motor dealership who you may be wanting to buy the car from. The advantage of getting a direct loan yourself is that you then have the cash available to try and negotiate the best deal on the price of the car and you can also shop around so that you get the best terms on the loan. Be aware that every application you actually make for finance is recorded on your credit file and too many applications can raise a warning flag with lenders who may get the wrong message and think you are struggling to get approved or over borrowing. You are advised to make enquiries about rates and terms but only agree to submit an application for finance once you are happy that the deal being offered is what you would want if you are approved.
Age of the car matters
If you have a particular make and model of car in mind or have already seen the one that you want to buy, then bear in mind that the age of the car makes a difference to the finance you will be offered. Most lenders will offer you up to five years to spread the payments over but they will normally only be prepared to do this if the car is under 5 years old. Any vehicle older than 5 years that you want to get finance on will probably be offered over somewhere between 12 months and 3 years maximum. Lenders are aware that cars drop in value and they don’t want to try and collect on a loan if you default, only to find that the value of the vehicle does not cover the amount they are owed within reason.
Rates differ
New car dealerships offer incentives to try and get you to buy a new car and this normally includes being able to offer you a more attractive finance deal than you could get on a used car. Some even offer interest free loans if you put down a hefty deposit of about 50% but you should still remember that a new car on finance may still cost you more when you allow for depreciation, so be prepared to pay a higher rate of interest on a used car loan and bear in mind the reason why it appears more expensive.
Get proof of your loan
If you decided to get a loan directly yourself, remember to ask the lender to send you proof in writing so that you can show the seller that you have the means to pay and in some circumstances, you mind even be offered a better deal if the car dealer knows he is competing for your finance business, bearing in mind most of them get a commission incentive from the lender they use.
Dealer loan
There is no doubt that getting a loan from the dealer where you are buying your used car from is very convenient but you should definitely check what you get elsewhere yourself before agreeing to any terms. Be wary of any conditions they try to impose such as saying that you have to use them for finance in order to get the car at the price offered and remember that generally speaking you should at least be able to match and in most cases better what you are being offered, so don’t sign up to a poor deal just for the sake of convenience.
As long as you are prepared to do a little bit of legwork yourself, you should be able to get a good finance deal and drive away in the car that you always wanted.
Neil Stelling is a retired car salesman who still keeps abreast of new developments in the field. He also likes to share what he finds with others by blogging on various websites. To learn more about your car financing options, visit Carfinance247.co.uk.
