Once you’ve found that perfect car and the VIN report also shows a green signal, another big decision which comes up is how you’re going to pay for it. If you have enough cash for down payment, it will save you lots of money on interest charges. But, if you have limited savings, it is good not to block the amount in a car purchase. You can always opt for the various financing options for buying your favourite used car. Taking out a loan prevents you from the burden of paying a big sum of money all at once. However, it surely adds on another payment to your monthly financial routine.
The higher the interest rate, the more expensive the loan will be. That’s why it’s essential to approach the financing carefully.
We came up with certain points that will help you know how to finance a used car without compromising your bottom line.
- How to finance a used car: Dealer vs. Bank Financing
- Choosing the loan terms
- Finalizing the loan
How to Finance a Used Car: Dealer vs. Bank Financing
Often, while purchasing a used car you may find a few different financing options available.
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Dealership Offer
The first option which you will get for financing during used car purchase is through the dealership. There are some advantages associated with this financing. Like, for starters, it’s convenient, you can get the car financed and you can drive it home the same day.
Whereas, if you opt for a bank or credit union to process your application for an auto loan, it might take a few days or maybe a week.
Hence, it is recommended to speak to a bank before finalizing the used car purchase deal. Bank people will help you determine your eligibility for a car loan. If you have good relationships with the manager, or you have approached a local bank where you have been a member in the good standing for past few years, there is a chance that your bank might offer you a better interest rate compared to any car dealership. Taking prior information about financing options also helps you have an idea, So, when you go to the dealership, you should have a set budget in your mind. You can negotiate based on that and you won’t be as easily swayed by a car salesman to buy a more expensive vehicle.
A financing deal from a dealership may be less stringent than any traditional lender in terms of credit approval, easy access to a loan especially for the buyers with the lower credit scores.
For those who have a better credit rating, taking the loan for a used car through a bank or union will be the best option.
Do the comparison, it might take some time, but comparing the rates in different banks will help you ensure that you’re getting the best deal possible. You can also check your credit history before initiating the process. It will help you have an idea about your loan approval and the rates you can expect.
If you have decided to get the financing outside of the dealership, be prepared to provide the proof of funding to the dealer.
You need to give the bank cheque to the dealer before you can drive the car off the lot.
Choosing the Loan Terms
Now, since you have finalized where you will get the loan from, all you need is to work out the actual details of the loan. That means how much money you will pay on the down payment, what will be the duration of your loan term, the interest rate of the loan and the amount of your monthly instalment.
You don’t necessarily need to make the down payment when buying a used car, but certainly, it will help. For any loan, the more money you put down during the down payment, the less you have to depend on finance.
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A bigger down payment may also help you get the lowest interest rate. Usually, 10 per cent of the actual amount is good to put down for the down payment. But, based on an individual’s finances, it can be less or more. Consider every point while deciding about the time duration you want to take to pay off the loan. Longer loan term means small instalment per month, and a smaller loan term will cut down the total amount of interest paid, but at the same time, you’re also going to be looking at a large payment.
Review your monthly budget properly and based on that, decide the best loan term for yourself.
Finalizing the Loan
After you have been approved for a loan and you’ve negotiated all its terms and conditions, the final step is to sign the final document.
Carefully review the documents and be sure about the amount you’re financing. Also, check the terms of the loan and the total cost of borrowing. Your dealer should be able to provide you with a complete loan plan, schedule, breakdown payment, interest, fee and financing charges.
