How to Finance Older Cars

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Buying a used car can be a smart financial move, particularly if the car is a relatively new model in good condition and not likely to need significant repairs and upkeep in the near future. Lenders typically have different borrowing requirements for used car purchases than they do for new vehicles, so being prepared before going into negotiations can put you in a better bargaining position.

Interest Rates

The interest rate you'll be quoted on a used vehicle will be higher than the interest for a new vehicle. You won't be able to qualify for zero percent financing, special cash-back rebates or dealer incentives on a used vehicle. To qualify for the best interest rate, you’ll need a down-payment or trade-in and solid credit, so pull your own credit and check it prior to applying for a car loan and fix errors on your report. This gives you an idea of where you stand before you start talking loan figures and interest rates with lenders.

Go to Your Bank or Credit Union

Shop around for a loan before you start looking at a used vehicle. Go to your own financial institution and get a quote so you know what you qualify before going into a car dealership. Keep in mind that car dealers have more wiggle room in the price of used vehicles than they do new ones, and having financing already secured gives you the opportunity to negotiate the absolute best rate the dealer and their auto finance company can offer.

Tip

  • If you're trading in a vehicle and purchasing another, research the value of your current vehicle using a source like Edmunds.com or Kelley Blue Book. Print out the report and take it with you to show the dealer.

Don't Get Fooled

One tactic auto dealers use when discussing used car financing is to ask you what kind of monthly payment you want, rather than focusing on the price of the car. Don't be lured in by this approach. The dealer can use the information you provide to juggle numbers in such a way that the interest rate and length of the note benefits the dealership rather than you. Instead, negotiate solely on the price of the vehicle, keeping your personal budget to yourself.

Tip

  • Even though a shorter loan term may result in higher monthly payments, keep in mind that when financing a used vehicle, you are essentially paying for a depreciating asset over several years. A short-term loan may be more beneficial, particularly if you're planning to keep the car for awhile and will eventually need to invest in upkeep and repairs to keep it in good running condition.

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