It is always the best idea to pay cash when you purchase a used car. Unfortunately for most of us, it is not possible to pay cash when we make large purchases. If you have decided to finance the purchase of a used car, it is important to know what to expect. In general, used vehicle financing conforms to the same set of basic rules:
1. It is More Difficult to Secure Financing for a Used Car
By and large, it is harder to get a used car loan. That’s because the lender is taking on more risk. Even for those whose credit is not optimal, it might be easier to get approved for a new car. Often, new cars even come with rebates or the finance company may offer special finance rates in order to entice customers. Unfortunately, new vehicles are often too expensive for people with poor credit and a strict budget.
2. Interest Rates for Used Cars are More Expensive
It usually costs more to finance a used vehicle than a new vehicle because the lender is taking a larger risk. After all, older vehicles are more vulnerable to maintenance issues, and they are no longer covered by manufacturer warranties. The lender wants to be protected in the event that something serious goes wrong with the car.
3. There are Limits in Terms of Vehicle Age and Mileage
Generally, a bank will not finance a used car that is more than 8 years old or has more than 100 thousand miles on the odometer. This is because older cars often break down and represent more risk for the bank. Older cars are also statistically more likely to be broken into or stolen. If you have credit that is less-than-optimal, a lender may even specify that you cannot buy a car that is more than 5 years old or has more than 75 thousand miles on the odometer. Again, the lenders are trying to protect themselves here.
4. Do Not Lease a Used Car
Leasing a used car is generally a very bad plan. Leasing a used car works just the same way as leasing a new car does. First you make a large payment upfront, then you get a low mileage limit for a monthly payment. However, leases for used vehicles often have extra fees that are not associated with new car leases. Since used vehicle leases are not significantly less expensive, it is usually a good idea to go for a new car if you are going to lease.
Remember that while buying a used car can be more difficult, it can save you money if you do your research about financing.