Financial experts tend to agree buying a used car makes more sense than buying a new one. After all, a used car has already taken the depreciation hit new cars experience during their first year on the road. This can be as much as 20 percent of the retail price of the car. Meanwhile, going used, you can get a car with the same look and equipment at a 20 percent discount — or better. This can be especially advantageous when you pay cash. However, you can also finance a used car purchase and come out ahead — if you do the following.
Review Your Credit Report The first, most important step in seeking any type of financing is to have an awareness of your credit record and the score it dictates. If there are errors on your report, clearing them will see you scoring more highly. This is important because the interest rates you’ll be offered will rise and fall in lockstep with strength of your credit history. The higher your score, the less you’ll be asked to pay in interest. On the other hand, if your score is soft and you need to find more money in your budget you can often refinance a car with bad credit.
Get to Know the Car Conducting research on the model in which you’re interested is important when buying cars. This is especially true when you’re buying used. You’ll need to be certain the car will suit the needs your living situation imposes. You’ll also need to learn if there are any key issues endemic to the model you’re considering. Most of all though, it’s important to find out how much the car goes for so you’ll know a good deal on selling a car when you see one.
Seek Pre-Approval This gives you the opportunity to shop around for the best rate you can get. Once you find it, ask for a loan amount sufficient to cover the average price for which your research has told you the car can be purchased. When applying for the loan, you should provide the largest down payment you can comfortably afford (at least 20 percent of the purchase price) and seek the shortest loan term your budget will accommodate. A large down payment will reduce the amount you’ll have to borrow and a short loan term will help ensure the car is always worth more than you owe on it. That way, if you need to sell it, or it gets totaled, you can more easily recover the amount of your outstanding loan, rather than having to go into your pocket to pay it off.
Pay Fees and Taxes in Cash Cover all ancillary costs in cash whenever possible to help keep your loan amount as small as possible. This will reduce the amount of interest you’ll have to pay, which in turn will make your total purchase price lower.
Be Patient Sometimes an intense desire to get a car will overwhelm your common sense. Before shopping, set the parameters your car and the deal must meet. Be reasonable of course, but keep shopping until you find the exact car you want at the right price and the right financing. Impetuousness has cost many a car buyer far more money than they should have spent. It has also saddled them with cars they eventually came to dislike because they had to struggle to make a hurried purchase fit into their lives.
Always Pay on Time Late payments will attract additional fees and damage your credit score. Then, when it’s time to get your next car, you’ll be stuck paying a higher interest rate. These tips for financing a used car will help you get the best deal possible — on the right car for your lifestyle.