“A Comprehensive Guide to Financing a Used Car”

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Can You Get a Car Loan for a Used Car?

Yes, you can finance a used car, although there may be fewer loan options compared to new cars, and interest rates are generally higher. Some lenders have restrictions on the age or mileage of the car, so financing a classic car or one with high mileage might not be possible. Financing a used car is a good option if you can’t afford to pay cash for the vehicle you want.

Where to Get a Used Car Loan

When seeking a used car loan, you have several options including banks, credit unions, auto dealerships, and online lenders.

Banks and Credit Unions

Banks and credit unions are common sources for used car loans. Credit unions, being not-for-profit cooperatives, often offer lower interest rates than banks or auto dealers. To apply for a loan from a credit union, you need to be a member, which usually involves opening and funding an account.

Auto Dealers

Auto dealerships that sell used cars typically offer financing options such as:

• Dealer-arranged financing: The dealer submits your loan application to several lenders to find the best rate. Dealership finance departments may increase the rate slightly to make a profit.
• Captive financing: The car manufacturer’s own financing company may offer loans on certified pre-owned vehicles.
• Buy here, pay here financing: Some dealerships offer in-house financing for customers with poor or limited credit histories. These loans usually have high interest rates and fees and require larger down payments.

Online Lenders

Online lenders operate similarly to banks and credit unions, but the entire loan application process is online. These lenders may specialize in auto loans or in lending to people with poor to fair credit. The process is usually faster, but interest rates may be higher.

How to Apply for a Used Car Loan

Follow these steps to apply for a used car loan:

Check Your Credit Score

It’s free to check your credit report and FICO® Score with Experian. A score of 670 or above is considered good. Improving your credit score can help you secure a lower-interest loan.

Determine Your Budget

Check average used car prices on dealer websites or auto-industry sites like Kelley Blue Book and Edmunds. Aim to make a down payment of at least 10%. Review your budget to figure out the monthly car payment you can afford.

Research Lenders and Get Preapproved

Shop around for used car loans by getting preapproval from three to five lenders. Submit all applications within a 14-day period to minimize the impact on your credit score. Preapproval gives you an idea of the loan amount, interest rate, and terms available to you.

Compare Loan Offers

Compare the annual percentage rate (APR) of different loan offers. Use a car payment calculator to estimate how different loan amounts and terms affect your monthly payment and the total interest cost. A shorter loan term often means a lower interest rate but a higher monthly payment.

Apply for Your Best Offer

Preapproval is not the same as final loan approval. Complete an official loan application to finance your car.

Frequently Asked Questions

• What Credit Score Do I Need for a Used Car Loan?
• Is It Harder to Get a Loan for a Used Car?
• Should I Get a Personal Loan to Buy a Used Car?
• Does Financing a Used Car Build Credit?

The Bottom Line

Used car loans typically have higher interest rates than new car loans, but a good credit score can help you qualify for better rates. Consider signing up for Experian Boost®, a free feature that gives you credit for making on-time utility, rent, phone, insurance, and streaming service payments. Paying these and other bills on time can help you get the used car of your dreams.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you with the best financing options available.

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