Used Car Financing

Buying a used car can be costly. While used cars are generally cheaper than buying a car that is new, many still can cost from several thousand dollars to tens of thousands of dollars. One of the popular ways to purchase a new car is with used car financing.

Generally speaking, used car financing is a secured loan. The car acts as collateral. If you are unable to make payments on the vehicle it is repossessed. However, since used cars generally have a faster depreciation rate than new cars, they generally require substantial down payments for those seeking used car financing.

If you buy a used car from a private seller, usually the only way to receive used car financing is to contact banks on your own. You can take out a used car loan from almost any bank, however terms (the length of the loan, interest rates and qualifications) vary from bank to bank. If you are seeking to purchase a vehicle that is less than several thousand dollars, you may be able to apply for a personal loan. These loans are unsecured- similar to a credit card, however they are generally more difficult to acquire since they are not secured.

If you are buying a used car from a used car lot or larger dealership, you not only will be able to try to acquire lending on your own through private banks, but the dealership may make available special lending options. For instance, many used car dealership offer their own lending. Generally speaking this option is usually more costly (higher interest) than a bank, but for people that have bad credit or prefer the convenience of buying and lending money at the same dealership, it is a viable option.

Generally speaking, used car loans have shorter lengths than new car financing. Expect loan lengths from one year to about 3 years (36 months). In addition, the seller or bank will usually require a down payment in the form of cash. For those buying a car from a used car lot or dealership, you may be able to trade an old vehicle in for a down payment, but for those buying from a personal seller, banks will not accept a trade-in. You will either have to come up with a cash down payment or sell an old vehicle on your own for cash first to give to your bank as a down payment.

Because used car financing can be more costly and less convenient, many buyers opt instead to buy a new car. Make sure you weigh all the information regarding financing and research your options before taking out a used car loan.

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  1. […] to do is spend your hard earned money on someone else’s problem.  This is why many shrug off buying a used car.  However, if you are fortunate to find a dealership that offers a warranty, you might be able to […]

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