How to Get Used Car Financing

Consumers can get used car financing from the same lending sources that provide financing for new car buyers, including car dealerships, banks and online lenders. Generally used car loans involve a higher interest rate than new car loans. Used car financing may also involve a higher percentage requirement for a consumer's initial down payment.

Difficulty: Moderate

Instructions

1. Get used car financing directly from your car dealership when you choose a "certified pre-owned" vehicle from a dealer's lot.

2. Finish negotiating for the purchase and price of a used car before you get into the financing arrangements with the salesman. When a used car salesman tries to get you to tell him "what kind of monthly payment" you are looking for, he will usually use that information to manipulate the other terms of the financing equation so that you pay more for the car than you might need to pay.

3. Get a used car financing commitment online before you make a deal on a used car by checking used car loan terms and interest rates at Bankrate.com and applying for pre-approval. You will then be able to play this commitment off against the car dealership's finance office to get the best deal possible.

4. Explore alternative financing if you are planning to buy a used car. Most lenders, including car dealerships, offer a more favorable interest rate for new cars than for used cars. If you know that you can get a competitive interest rate from a bank, credit union or by borrowing against your existing equity, you will be in a better position to get the best rate available from a car dealer.

5. Economize on your used car purchase by getting a relatively short-term loan. Used car financing usually involves higher interest rates and larger down payments (percentage-wise) than new car financing. Consequently, it can be expensive to pay that higher interest over a period of 2 to 3 years. If you can keep the loan term to 6 to 18 months, you may be able to save money and enjoy the pleasure of being able to keep driving the car after it has been paid off.

6. Know your credit score when you discuss financing options. If your score is over 680, you should be able to use it to ensure that you get fair financing terms.

Tips & Warnings

• Strengthen your credit score before you seek used car financing. Check out your credit score with Experian, Trans Union or Equifax, and review your credit report to correct any mistake and pay off any high balances or late items that may affect your credit score negatively.
• If you are considering buying a used car from a used car lot that is not associated with a manufacturer's car dealership, it is often wise to avoid a used car dealer's "we tote the note" financing offers. You would be better off seeking used car financing from the bank where you have your personal checking or savings account.

Resources

• Check used car financing at Bankrate.com