Used car financing tends to be more expensive than that of a new car as it involves a possibly higher interest rate with shorter loan terms. It might come as a surprise, but the logic behind it is pretty simple. Banks risk more when giving a loan for a used car. Loans will typically include an amount in the case of non-repayment, making it higher.
In case of defaulting on loans, confiscating a used car is risky compared to repossession of a brand new car, and loans generally tend to reflect this risk.
Here are some auto financing tips to keep in mind when applying for finance for used cars:
1. Opt for other possible options
When financing for a used automobile, one tip to remember is that there are other options other than a used car loan. Home equity loans, peer-to-peer loans, and personal loans come with lower interest rates than an auto loan for a used car. Whichever loan you end up opting for, always ensure the rates are what you can afford. These loans can save some serious cash when compared to getting a used car loan.
2. Know your credit score
This tip applies to auto financing for used as well as new cars. Considering that used cars come with higher rates of interest, understanding your credit score can help to a large extent in availing good deals. Ensure that your credit score is as high as possible to give yourself a fighting chance.
3. Get a non-recourse loan
In case you default on the loan, the bank can repossess the car to make up for the remaining loan amount. In the case of used cars, the value of the car will not make up the loan amount, and you will find yourself still owing the bank money. A non-recourse loan will prevent you from having to pay for any deficit that exists after the car is repossessed. You will not have to cover for this loss that the bank faces. Non-recourse loans are the smarter option if you are taking out a loan for a used car.
4. Keep the term as short as possible
One of the most important auto financing tips is that even though loans for used cars come with shorter terms, ensure that you keep the term as short as possible to get the lowest possible interest rates.
5. Put down as much as possible
Pay as much as a down payment amount as possible so that you are left with a smaller principle and, in turn, a lower interest rate every month. Doing so can help increase your savings in the long run.
Auto financing for a used car is never a bad option. Deciding on whether or not you need financing, will depend on your financial requirements, existing commitments, and your economic situation. Do not fall prey to society and prevent yourself from going for a used car loan if that’s only what you can afford. Keeping these auto financing tips in mind for a used car will help in getting the best deals with minimal losses in the long run.