Used Car Loans - What You Need to Know
Where to find used car loans, what to ask and the impact of your credit scores on loan interest rates.
What You'll Find Here
Investigate Your Financing Options
Shopping for Your Loan
Loan Insurance
Accident and Health Insurance
Investigate Your Financing Options
Call your bank, check out web sites that offer online loans and get loan quotes from the dealership you plan to shop first. Find out if they have any "special rates" or low interest car loans.
Take a look at Edmunds.com for Factory to Consumer Incentives which frequently offer low interest rates and or cash back options. A difference in one or two percentage points can save you hundreds of dollars over the course of the loan.
Financing Through a Dealership
If you should decide to finance through the dealership - this excludes factory to consumer low interest rate offers - keep in mind that their rates are usually negotiable. The reason is this: Dealers make deals with banks to provide loans to their customers.
The bank gives the dealer a rate of say 4.5%. The dealer can then charge the customer a 7% loan rate and keep the 2.5% for himself. A dealer will frequently discount his "cut" of the interest rate to make the deal.
If you plan to finance through a dealer, always shop other sources so that you will know the going market rate in your area for vehicle loans. Also, be sure to negotiate the price you're prepared to pay for the car before you reveal that you are thinking about dealer financing.
If they know ahead of time that you plan to finance, they will frequently quote you monthly payment numbers and not reveal the actual interest on those payments. For example, a 60 month loan can have an 8% interest imbedded in the payments and still look pretty good to the buyer.
The More Cash Down the Better
Another point to keep in mind is that wherever you finance, the more you can put down in cash and in trade-in equity, the lower your monthly payments.
Bottom Line: Unless the manufacturer is offering a truly low interest rate loan, you will probably be better off avoiding a loan arranged through the dealership and look to your bank or to financial institutions offering online car loans.
The Impact of Credit Scores on Loans
Before you start to shop for a loan, it's important to know your credit score and to understand how it impacts your loan rate. Click here for everything you ever wanted to know about Credit Reports and Credit Scores.
Credit Report Resources
As you know, the lower your credit score the higher your rate. Here are some resources that you might want to review...
- Click here to find your credit score.
- Click here for bad credit report repair help.
Shopping for Your Loan
Here are some tips that are important for you to keep in mind while shopping for your loan.
- Find out your credit score and understand what it means to the interest rate you'll be quoted. Click here for more on the Impact of Your Credit Score on Loans.
- Decide how much you can put down as a down payment.
Far too many car buyers accept long financing arrangements in order to minimize their down payment. If they decide to trade in the car in the first year or so, they often find that they actually owe more on their car than it's worth.
Not a pleasant prospect, to say the least.
A good rule of thumb is never to finance more than 80 percent of the true cost - i.e. the dealer's invoice - of the car. At least 20 percent [some recommend more] should be paid in cash or in the equity of your trade.
Keep in mind the moment you drive the car, van or truck home, the actual value will have dropped. Within the first year the car can lose from 20 to 40 percent of its MSRP.
If you sold it yourself you might be able to cover your pay off and maybe recoup some of your down payment. Maybe! - Learn the interest rates for car loans and calculate the monthly payments on the amount you intend to finance for both a 24 month and 36 month loan. Click here for a payment calculation.
Don't let yourself get trapped into a 48 or 60 month loan.
Sure the monthly payments look attractive as compared to those of a 24 or 36 month loan, but add them up and you'll see just how much more these 48 and 60 month loans cost in actual dollars.
Be aware that interest charges will vary widely for the same amount of money. So take the time to shop and compare.
Take a look at what interest rates on car loans can do to the actual out-of-pocket cost of buying a car. - Take the time really shop for your money, find the best car loan rate and have an estimate of the monthly payments, make a hard nosed personal decision about whether the payments will fit into your budget.
Other Loan Considerations
Loan Insurance
Accident and Health Insurance
The Impact of Your Credit Score On Loan Interest
