Is Financing A Used Car A Good Idea?

Whether you choose to buy new or used, a car is a major purchase. It’s important to make sure that your vehicle will last as long as possible and serve you reliably while it’s in your possession. Used cars can provide great value and dependability as long as you select your vehicle carefully. In order to close a deal quickly when you find the right vehicle for your needs, you need to learn how to finance a used car.

Can You Finance a Used Car?

Vehicle financing allows you to take out a loan to pay for a vehicle purchase. While you can find plenty of publicized deals for new vehicle financing on dealership ads, financing offers for used cars aren’t promoted as heavily. This may lead to the misconception that you can’t get an auto loan for a used car, but that isn’t true at all. You can finance a used car in much the same way as you would a new car.

Should You Finance a Used Car?

Now that you know you can finance a used car, the next step is to consider whether or not you should go this route. If you have the funds to pay cash for a used car, this is always preferable. When you finance your vehicle, you will have to pay interest over the life of your loan, which results in a higher final price for your used car. However, if you can’t afford to pay cash, then financing is a great option.

The financing available for a used vehicle is typically different than what you would get for a new car. There are many advantages to financing a used vehicle, including:

• Smaller overall loan: Used vehicles are less expensive than new cars, so the total amount of the loan will be less. This, in turn, can either lower your monthly payments or decrease the life of the loan.
• Greater availability: Vehicle financing for cheaper used cars is easier to secure than financing for an expensive new vehicle. If you have bad credit or a low income, you may still be able to finance your car loan quickly and easily.
• Slower depreciation: A new car will lose about 20% of its value within the first year. This leaves you paying for a lot of lost value toward the end of the loan period. A used car depreciates slower, so you’re less likely to end up owing a lender more than it’s worth.

With these points in mind, there are still a few drawbacks to financing a used car rather than a new one:

• Higher interest rates: The interest on a used car loan is usually higher than on a new car loan. There’s a greater chance that the loan will outlast the car as the vehicle gets older, so the lender is assuming more risk.
• Fewer deals: Dealership specials like bonus cash, sales events, and special rates usually only apply to new vehicles. With a used car, you won’t have as many opportunities for exclusive deals.

How to Finance a Used Car

If you’re planning to secure financing for your used car, there are a few crucial steps that you’ll need to follow. Keep in mind that you only need to finance what you can’t pay. Make the largest down payment that you can afford — this goes interest-free toward your vehicle’s overall price and lowers the total amount of the loan that you have to secure. It’s a good rule of thumb to try and put 20% down on your vehicle.

Here are some steps you should take when you decide to finance a used car:

Check Your Credit Score and Finances

You can often secure financing for a used vehicle even if you have a low credit score. However, it’s helpful to know your financial standing before you begin the application process so that you can decide whether this is the right time to buy a car.

Typically, a bad credit score is anything below 670. Many credit card companies will supply you with your credit score free of charge. You can also request a free credit report annually from each of the three major credit reporting agencies, Experian, Equifax, and TransUnion. Make sure that the information on your report is correct, and dispute any errors you find. The higher your score, the better your financing will be.

Find the Right Vehicle

When you start to look for your new vehicle, take your time to find a used car that fits your criteria. Many dealerships offer certified pre-owned (CPO) vehicles that are in excellent condition and only lightly used. These vehicles often undergo detailed inspections and refurbishments before the dealership puts them out on the lot. Ask about the CPO program where you’re shopping to learn more.

Compare Offers

Shop around for used car financing to make sure you’re getting a good deal. You’ll often find a wide range of offers available from different lenders. Compare several, but do so in a limited time frame. These inquiries on your credit report will actually lower your score, resulting in less favorable offers. If you get all of your offers within two weeks, however, your score won’t have been updated yet.

You can apply for financing online from many lenders to get started on your journey to purchase a used car.

Calculate Your Payments

For each financing offer you receive, determine what your monthly payments would be. Then, look at your budget carefully to decide what you can afford. Factor in other vehicle expenses, such as gas, maintenance, and registration, to make sure that you can afford all of the costs that come along with the car.

Complete Your Financing

Once you’ve chosen your vehicle and your financing plan, you simply need to finalize the paperwork to secure the financing and make your purchase. With the right loan, you’ll be able to afford a great used car that can serve you well into the future.

If you’re interested in purchasing a used car, you’ll find plenty of choices awaiting you at Hiley Mazda of Fort Worth. We have an extensive selection of quality used vehicles for you to choose from. Visit our lot today to see what’s available.