Car loans for used cars work just about the same as a loan for a new car. The primary difference is that there is a known value for a used car. With new cars, the value is still being set by the market.
Determining The Value of a Used Vehicle
Lenders will only allow you to borrow a set amount for a specific used vehicle. Each institution uses its own valuation guide, but you can get a good idea of what a vehicle is worth on nadaguides.com or kbb.com. When you talk to a salesperson, you should have an approximate idea of a vehicle’s value.
Determining a Fair Interest Rate for Your Credit
Once you have found a specific vehicle, you need to approach the lender yourself, or through an online service like ours. If you let the dealer arrange financing for you, they get a commission for sending your business to a specific network of banks, causing you to pay a higher interest rate than you may have to. If you do allow the dealer to arrange your car loan, keep in mind that the rate they quote you is negotiable. You can get a fair rate through them, but you must be willing to haggle. In order to check current used car rates by credit score, we recommend MyFICO’s Rate Calculator. Keep in mind, interest rates on used car loans are slightly higher for a variety of reasons, most obvious of which is a slightly increased risk of maintenance issues.
Confirmation of Credit and Insurance
Once the lender has committed to making the loan, you will need to return to the dealership. Once all of the paperwork is filled out, the dealer will contact the lender directly to confirm the loan is approved. Once the loan is confirmed, you will need to sign the appropriate paperwork. Once this is done, you will have to provide proof of full coverage insurance on the vehicle. This is usually done by calling your insurer and having a fax sent to the dealership. No insurance, no loan. After the fax arrives, you will be able to drive your ”new” vehicle home.