You’re in the market for a new-to-you vehicle, and you’re considering all your options. You’ll probably discover that financing a used car is different than getting a loan on a new one. Before you head to the dealership, check out these five tips for financing a used car.
1. Know your Credit Score
Banks and other lending institutions use your credit score to determine your interest rate, among other things. The good news is buying a car doesn’t require perfect credit. However, those attractive ads for low-interest financing are geared toward borrowers with excellent credit, which generally means a minimum FICO credit score of 700. If you have little, no, or poor credit, you’re likely to pay more interest over the life of your loan.
2. Get a Few Quotes
Often the best choice for financing is through your dealership. It’s staffed with loan experts armed with long-standing partnerships with banks and might even offer incentives from the lending companies it works with regularly. It never hurts to have a comparison quote, though.
In today’s high-tech world, it’s easy to apply for a used car loan online. Shopping around for financing is just as important as test-driving more than one car. Compare not only the monthly payment but the term of the loan as well as the interest rate before you sign on the dotted line.
3. Keep the Term Short
The longer your loan, the more you’re going to pay in interest. This idea is an easy concept to grasp, but when you’re looking at those attractive monthly payments on a seven-year payment plan, it’s hard to resist. Be realistic, and opt for saving money over convenience. When you pay off your loan faster, you end up owning your car sooner — and it’s worth the price you paid for it.
4. Put Down a Large Payment
Another way to save money on financing is to put as much money down as you can reasonably afford. Some experts recommend a 20% down payment when purchasing a vehicle to compensate for depreciation.
The key thing to remember is the more money you put down, the better. Your loan will be smaller and so will your monthly obligations. A significant down payment might also give your lender a reason to lower your interest rate. Take time to save up, especially if your credit is less than stellar.
5. Pay Fees in Cash
When you buy a used car, you usually have to pay a variety of other costs, as well. From dealership fees to sales tax, these added expenses are often rolled into the loan. If possible, consider paying these fees in cash instead of financing them. Why pay interest on sales tax? It simply doesn’t make sense from a fiscally responsible standpoint.
Use these five tips for financing a used car next time you head to the lot. Armed with this knowledge, your car-buying experience will be fun and rewarding.