financing a used car

How to Finance a Used Car: 6 Steps to Follow

Shopping for a used car? Though it may not be brand new, it’s just as exciting as getting a new one. And a whole lot cheaper too!

But the next question is, “How would you pay for it?”.

If you’ve got some cash in your back pocket, paying for your next car will save you thousands of dollars. 

But if you’ve saved up enough only for the down payment, you might want to consider getting your car financed. Although it may not save you as much, in the long run, getting a used car is within arm’s reach with used car financing. With affordable monthly repayments, car financing is a budget-friendly option to get a car without having to shell out all your cash in one go.

We see used car financing as a good option, but how exactly does the process begin? Let’s take a look at the following steps on how to finance a used car.

Know Your Credit Score Before You Apply

Banks use your credit score as a point of reference when you apply for car financing. This number can make or break your chances of getting pre-approved or getting the lowest interest rate.

Knowing your credit score can give you an insight into what to expect when searching for the best deals from lenders.

The higher your credit score, the more benefits you can reap.

One of the perks of an excellent credit score is getting qualified for a higher loan amount. And the best benefit of all? Low-interest rates.

Research Lenders

If your credit score is decent enough to qualify for a loan, it’s time to move on to the next phase: Doing your research. 

Researching is made a lot easier now that most of the information you need can easily be accessed on the internet. This allows you to compare and shop for the best offers and even send an inquiry online.

Car dealerships often have an in-house financing option but better offers are usually found outside the car dealerships.

With this in mind, consider looking at offers by large national banks, local banks, online banks, finance companies, and credit unions before heading out to start test driving cars.

Apply For a Used Car Loan 

Pick a few of the best offers and submit your loan application. Lenders will often request borrowers to submit an application either online or in-person.

Be prepared to give some personal details when submitting the loan application. Some questions are included for legally mandated reporting purposes, but will not affect the decision for the approval of your loan. 

What’s important is just to make sure that you’re giving honest answers and avoid giving out false information. Creditors will often cross-check and, if you’re found out, your loan is at risk of being automatically declined. 

Another quick tip: Multiple loan applications can lower your credit score. But several applications for the same type of loan, submitted within a short timespan (i.e. less than a week or so) count as one inquiry.

This is one way that doing your research up front pays off.

Make a wise choice by comparing Car Financing Offers

When looking and comparing car financing offers, try to focus on the total amount of your car purchase instead of the monthly payments you’ll have to make. 

Before moving forward, understand that car financing for used cars costs more and has shorter loan terms compared to new cars because of the higher risk to the lenders. 

Your loan can end up with higher interest rates which is why comparing the pros and cons of each offer is vital to prevent a potentially costly buying mistake. 

Head to the car dealership 

As soon as you’re armed with information about the type of car you want, have a financing offer in hand, and sufficient knowledge about how to finance a used car, then you’re finally ready to head to the car dealership!

Obtaining a vehicle history report assures you that the car doesn’t have a history of a major accident or repairs. Request for one from the dealership but if they don’t have one, go online and buy it yourself. You may have to pay as much as $50 but it could save you from many hundreds in costly repairs.

Having the vehicle checked by a mechanic is also another major step to take before signing any paperwork. Don’t trust the dealership’s mechanic. Find your own. If he works for you, he’s more likely to give you an honest assessment.

Some more useful tips

Negotiate! Remember that buying a car is a business transaction and the more savings you can get up front, the better off you’ll be over time. Some offers may end up costing you more, so pay attention to details when given a seemingly irresistible offer for a financing package.

Don’t roll extra fees into the cost of financing. Though it may seem easier to just throw in all the costs of the car purchase into the financing, these fees can increase the total of your loan and will incur interest. If you can pay for the extras on top of the down payment, do so. It can save you a lot.

Know which auto insurance you should get. Some lenders may require some form of insurance before releasing the vehicle. This is to ensure that they still get paid even in the event of an accident.

Gap insurance can also be purchased to protect the lender from any incidentals. Do some research to make an informed decision about the appropriate insurance for your vehicle.

Remember that it’s sometimes worth paying a little extra for an insurance company you know will make good if you need to file a claim.

Ready to get out there and get your car? The Auto Warehouse is a trusted used car dealership that offers one of the widest selections in the Greater Chicago area. If you need help finding the vehicle that’s right for you, visit us today at The Auto Warehouse.