If you want to buy a used car using a loan, be careful not be blinded by the excitement of being a car owner. You need to shop around to get a good car and a lender that will finance you. If you have a good credit history, most lenders will readily approve your application for a used car loan. On the other hand, if you have zero credit or a poor credit history, you may have to provide collateral for your loan application to be approved. The interest rate that you will be charged for used car loans will depend on various factors.
Before you apply for a used car loan, there are a number of things you should consider. These include:
1. Trade-in value
If you already have a car and wish to purchase a new one, you can trade-in the old car and thus pay a lower cost for the new car loan. If you sell the car to the dealership, you will get a very low price for it. The dealer will be looking to sell the car back in the market and thus would offer as low as possible for it. You can get more for the car if you sell it to a private party. You can use the amount that you get to reduce the cost of your auto loan.
2. Market finance rate
This is what is generally referred to as the bank interest rate. The market finance rate refers to the interest rate that lenders charge consumers who are classified to good credit borrowers. The majority of consumers are charged the market finance rate. However, the rate you will be charged will depend on different things such as the demand and supply of credit in the market, your credit history and your overall perceived risk of defaulting your payments should you be approved for a loan.
3. Loan term
Most people will be comfortable with a loan that spans over the traditional 60 months. If you opt for a loan with a shorter term, your monthly payments will be higher. Used car loans with longer terms come with low monthly payments. However, the cumulative interest is higher than that of shorter term loans. If you will have difficulty making your monthly payments, request the lender to increase the term of the loan.
4. Monthly payment
Find out how much you can afford as monthly payment for the loan. The payment should include registration, taxes and title fees that will be included as part of your loan. Generally, it is advisable to keep the payment less than 20 percent of your monthly disposable income. The monthly payment is not inclusive of other costs of owning the car such as maintenance, insurance and gas cost.
Used car loans can enable you to afford a pre owned car. However, you need to research well to get a loan that will fit your financial situation. The above are some of the things that you should consider before apply for auto financing.