Some people in the market for a new used car might prefer to pay for their vehicle with cash. Thus, they avoid a credit inquiry and a long-term monthly payment. But in the real world, this is becoming less and less common. Buying a used car typically involves applying for a used car loan. But while you may not jump at the idea of taking on a new monthly debt, there are ways to keep your used auto loan affordable.
Used car loan dealerships vary. Some cater to people with no credit history and bad credit, and offer in-house financing. In this case, anyone with a down payment and acceptable employment can qualify for a used automobile. Of course, bad credit used auto loans don’t always feature the best terms, and it’s not uncommon for borrowers to pay higher interest rates.
If you need a car and can’t qualify with a large dealership, this is your best bet. Many dealerships that offer in-house financing do report to the credit bureaus, thus having a bad credit used auto loan can help improve your credit – providing you pay your car loan on time each month.
If you have good credit, it shouldn’t be difficult to obtain used car financing from a large dealership or another bank. Some people prefer larger dealerships because of their reputation and their larger selection of automobiles.
If you’re in the market for a used car loan, pay close attention to your credit score. In fact, your credit essentially determines your options for financing. A person with a credit score of 620 or lower may not qualify for most financing programs. However, if you maintain a score in the 700 or higher range, the options are numerous.
In most cases, the dealership will not require a down payment or cosigner if you have a high credit score. You can literally sign and drive in the same day. So how do you qualify for this type of used car financing?
Maintaining a strong credit history is the key. Before test driving a used car and applying for a used auto loan, check your own credit report. This takes less than 10 minutes and you can order your report online. Annualcreditreport.com is authorized to give every consumer one free credit report annually. Order your personal history and then check each line of the document for errors or problems. Dispute errors and take steps to raise your credit score. Pay your bills on time and pay down debts.
In addition to taking steps to ensure a loan approval, you should work to obtain the best interest rate possible on your used auto loan. Your interest rate impacts your monthly payment, and borrowers who receive a higher rate pay more each month. An excellent credit score is a top way to obtain a prime interest rate and keep your vehicle loan affordable. But you can also obtain desirable used car loan rates by shopping around.
While dealerships have a finance team in place to secure your financing, consider other alternatives. For example, you can apply for a used auto loan with your personal bank or credit union, and perhaps obtain a rate that’s lower than the rate offered by the dealership. Banks have different standards for determining interest rates. And whereas one bank may offer a certain rate, another bank may offer a rate much lower. Don’t rush the process and contact at least three different finance companies before choosing a company to handle your used car financing.