Yes, you can finance a used car. In fact, depending on your credit score, it may be easier to find financing for a used car than it would be for a new one. However, it is important to note that interest rates for used cars are higher than those for new ones – typically about 30% higher. This is because, to lenders, used vehicles are considered a slightly higher risk. After all, they are, at least statistically, more prone to mechanical issues. On the other hand, used vehicles are cheaper to purchase than their brand-new counterparts, and they are less susceptible to depreciation and negative equity. If your credit isn’t perfect, then a used vehicle is typically the way to go.
Lender Restrictions on Vehicles Financed
All lenders put in place restrictions on the type of used vehicle you can finance. These parameters vary from lender to lender, but we can provide an overview of common restrictions in terms of mileage, age, and other factors.
- Age: 7 or 7.5 years old
- Mileage: 75,000-100,000 miles
- Amount: $5000-$7500 minimum loan
- Title: no vehicles with salvage or rebuilt titles
- Seller: no private party or independent dealers
Again, each lender has their own requirements in terms of vehicle and loan type, but this is a good overview of common lender policies. It is important to keep these policies in mind when considering vehicles you’d like to purchase, in order to avoid the disappointment of finding the vehicle you want, only to learn that it cannot be financed through your dealer of choice.
How to Finance a Used Car
Financing a used car is fairly straightforward process. Here are a few steps that may help you make the most of
- Credit Report: Request your credit report from www.annualcreditreport.com. Look for errors or omissions. Correcting these can boost your score immediately. That higher score will improve your chance of being approved for a loan and may lower the interest rate that you are offered.
- Down Payment: Lenders want to see that you are vested in the car that you want to finance. That means a down payment. You should have at least 10 percent of the purchase price as a down payment. Twenty percent is ideal. That shows you have an interest in repaying the loan, lowers your monthly payments, and decreases the amount of interest you will have to pay over the life of the loan.
- Loan Application: If your loan application is denied by a traditional bank, try shopping around at local credit unions or utilizing an online service such as MyCarLender.com. Credit unions have looser lending requirements than most banks and there are literally dozens of online lenders who specialize in working with people who have lower credit scores.
Recent posts in Buying