Without the availability of used car financing, many teenagers would not be able to buy their first car. They just don’t have the money to buy the car outright. Fortunately, this type of financing is not difficult to obtain at very reasonable interest rates. All you have to do is do your research and follow these simple steps.
When searching for used car ads, you should definitely come across what looks like great car loan availability from the car dealers themselves. You will see zero percent offers, low paying offers that look too good to be true. Of course they are! These ads are meant to mislead you, get you to come and apply, and eventually get a loan that’s 10 to 18 percent above the standard rates! Yes, interest-free offers are available, but only if you have excellent credit. Most used car buyers do not fall into this category. In general, used car loan interest rates exceed new car interest rates by a few percentage points, on average.
One way to reduce this cost is to get your loan through a car dealership or a private finance company rather than your regular bank. These institutions often have more liberal credit policies. However, any lender will want proof of the car’s value and a 20 percent down payment. This is normal and should not be considered a dubious request. Both of these arrangements are designed to give the lender a margin of safety should the loan default. In such a case, the lender’s only recourse is on the collateral, that is, on the car. Therefore, they naturally have an interest in knowing that you are not paying too much for the car and that at least 20 percent of its value is still valid even if the default occurs immediately. This is actually an advantage for you as well.
Before you apply for your financing, give yourself a credit check. This will help you determine what you can afford and what to offer. Sometimes you may find that a used car loan isn’t right for you before you actually start. This may be due to a low credit score, failure to meet down payment requirements, or insurance concerns. This is important to know because online establishments will lure you in with one-day offers. Don’t fall for it! Despite their dire warning about the offer expiration, these lenders will be there for you tomorrow with another great offer! Wait until you are comfortable with the amount and terms. It’s not worth the destruction that a credit default can play on your credit history, to get it now if you’re not sure you can repay it properly.
Another caveat regarding car loans and other financial transactions – keep all your paperwork in good standing. If you got the loan online, print a copy of everything and keep it in a safe place. Do not sign anything that you do not fully understand. Ask questions until you understand. Talk to a third-party professional to get a different perspective. It is your responsibility to protect your own interests. Don’t expect the lender to do it for you. This is the way of thinking that has led to the current mortgage crisis in the United States.
One final piece of advice: look into refinancing as soon as you get your used car loan, especially if you didn’t get a zero to three percent interest rate. Refinancing sites often have calculators so you can calculate your total savings. If you can get a percentage point under your current contract, it’s worth it.