For most people, getting financing is a necessary part of car buying. When you’re buying a brand new car, securing financing is usually straightforward.
But, for used car buyers, getting the right loan at the right rate can be surprisingly tricky. If you are considering taking out a loan to buy your next used car, follow these handy tips to make sure you get the best possible deal.
- Know Your Credit Score
Financing can be tricky to understand at first, but the truth is that it’s fairly predictable. And the most important factor in the type of financing you secure is your credit score. Lenders use this number to determine your overall credit worthiness, and then offer you a rate designed to hedge their estimated risk from lending to you.
What interest rate corresponds to your credit score will vary based on current market rates. Once you have your credit score in hand, go online and find out what type of deals lenders are offering to people with credit histories similar to yours. Then, use those numbers as a benchmark to judge whether you should, or shouldn’t, accept an offer.
- Choose an Eligible Car and Model
Lenders are happy to cover almost any new car, but not all used cars in Canberra will be eligible for loans. The basic rule of thumb is to choose a car that is very likely to last at least two years and ideally much longer. This is because lenders want you to pay off your loan before the car reaches the end of its lifespan. Older or very inexpensive cars may be deemed likely to expire before a two-year loan is paid off.
- If Possible, Get a Loan from a Bank, Not a Dealer
It is very common for used car dealers to offer credit. And in almost all cases, it’s a mistake to accept their offers.
Dealers know they have an inside track on giving buyers loans. This allows them to offer higher rates. Most often, they simply repackage loans from banks and other lending institutions, increase the rate, and add the difference to their own margins.
This means that if you qualify a loan through your car dealer, you can almost always qualify a better rate by going directly to a bank. Working directly with the lender will spare you the margin, and give you greater leverage when negotiating the final price with your dealer.
- Be Prepared to Put 10 Percent Down (or More)
Some unscrupulous banks and dealers will accept down payments of less than 10 percent. If you get such an offer, odds are excellent that you are getting a much higher rate on your loan than is necessary.
On the other hand, the ability to pay 10 percent upfront signals to the lender (or dealer) that you are less of a risk, they will realize you are worthy of a lower rate. Come ready to pay at least 10 percent on signing day, and you’ll save over the long run.