Financing Your Used Car
One of the most intimidating aspects of buying any car is figuring out how you’re going to pay for. Buying a used car is no different. Any car is an expensive purchase, and so should be taken seriously. Because cars are so expensive, many people will have to take out a loan to buy the used car they want. This guide will provide some helpful tips to make sure you get the best used car loan rates possible.
Pre-Qualify for Used Car Loans
One of the best ways to alleviate used car loan fears is to pre-qualify with your preferred lender. In fact, the pre-qualification process is a great way to shop around and find the best interest rates for you. For some people, a Bank of America used car loan might be the best answer, for others it might be a PenFed used car loan. No matter what lender you wind up using, going through the pre-qualification process with different banks is a good way to shop around.
Pre-qualification is a process where you provide some basic financial information to a bank and they estimate how much of a loan you can qualify for, and what your interest rates will be. Many banks even allow you to enter the specific car you’re interested in so that you can get an even more precise idea of the interest rates you’ll get.
Unlike an actual loan application, pre-qualification doesn’t produce a credit check on your credit report, so you can shop around without fear of ruining your credit. However, it is important to be as honest as you can be when you are answering the pre-qualification questions so that you aren’t surprised by the rates that you are actually offered, as pre-qualification can only generate a range of interest rates, not the actual rate you’ll pay. It’s also important to only get a loan amount that covers the car you want. Some people have asked “can you use a car loan for something else?” and the answer is no. Therefore there’s no benefit to trying to qualify for a loan that is substantially higher than the amount you want to spend on a used car.
Factors that Affect Interest Rates for Used Car Loans
There are a number of different factors that can affect the interest rates for your used car loan. Some of the biggest factors are your credit rating, the specifics of the car you want to buy, and where you live.
Your credit score is a number that lenders use to help determine how much of a risk you are. Credit scores are compiled by credit bureaus based on the information they get from your creditors. If you’ve missed a lot of bills in the past then you might not have a very good credit score. Thankfully, there are many businesses that specialize in bad credit used car loans. However, you should be prepared to pay a higher interest rate, as the lender sees you as a higher risk loan if you have a bad credit score
The next element that affects interest rates for used car loans are the specifics of the car you want to buy. Banks set interest rates based on how much money they need to charge to justify taking the risk of lending you money, and the bank gets your car should you stop paying. Therefore, banks will charge lower interest rates for cars they are confident they can sell at a higher value. As a result, you may pay more in the long term for a used car that is cheaper but older than you would for a used car that is newer and has a higher sticker price.
Where You Live
Your location also affects your interest rates for used car loans. For example, the used car loan rates Columbus, Ohio will be different than the used car rates in Atlanta, Georgia. This is because different environments wear differently on cars, and because certain areas are more likely to have car accidents than others, all of which affects the level of risk the lender assigns your loan, thus affecting your interest rate.
As you can see, financing a used car doesn’t have to be an intimidating process. Use pre-qualification to shop around and understand how different factors can affect your interest rate and you’ll be driving the used car of your dreams in no time!