Many young people could not afford their first car if it were not for the availability of used car financing. They just do not have the cash to buy the car outright. Fortunately, obtaining such financing at very reasonable interest rates is not difficult. You just need to do your research and follow these simple steps.
As you're paging through the used car ads you're bound to come across what looks like absolutely fantastic car loan availability from the car dealers themselves. You'll see zero percentage offers, low payment offers that seem too good to be true. Of course, they are! These ads are mean to mislead you, make you come in and apply, and end up getting a loan at 10 to 18 percent over the standard rates! Yes, interest-free offers are available, but only if you have perfect credit. Most used car buyers do not fall into this category. In general, used car loan interest rates exceeded those of new cars by several percentage points on average.
One way to mitigate this cost is to get your loan through a dedicated finance company rather than through the car dealership or your normal bank. These institutions generally have more liberal lending policies. Any lender, however, will require proof of the value of the car, and a 20 percent down payment. This is normal and should not be considered as a suspicious request. Both these regulations are designed to give the lender a safety margin, should the loan go into default. If that happens, the lender's only recourse is in the collateral, which is the car. Therefore, they typically have a vested interest in knowing that you did not pay too much for the car, and that at least 20 percent of its value holds even if the default happens immediately. This is actually an advantage to you, as well. There is someone looking over your shoulder at the transaction, making sure it is a respectable deal and price for the vehicle in its current state and condition.
Before you apply for your financing, run a credit check on yourself. This will help you determine what you should be able to afford and should be offered. Sometimes you may realize before you really get started that a used car loan is not affordable for you. This could be due to a low credit score, inability to meet the down payment requirements, or insurance concerns. Knowing this going in is important, because online institutions will tempt you with one-day offers. Do not fall for it! Despite their dire warnings of offer expiration, these lenders will be there tomorrow with another fantastic offer for you! Wait until you are comfortable with the amount and the terms. It is not worth the catastrophe a loan default can play on your credit history to take it now when you're unsure you can repay it as required.
Another caution with car loans and any other financial transactions – keep all your paperwork in good order. If you've obtained the loan online, print out a copy of everything and store it in a safe place. Never sign anything you do not understand completely. Ask questions until you understand. Talk to a third-party professional to get a different point of view. It's your responsibility to protect your own interests. Do not expect the lender to do it for you. This is the kind of thinking that led to the current mortgage crisis in the United States.
One final piece of advice: As soon as you get used car loan, look into refinancing it, especially if you were not able to get a zero to three percent interest rate. Refinancing sites will usually have calculators on them so you can calculate your total savings. If you can get a percentage point under your current contract, it's worth it.