Having to make a choice between owning a new car and owning a used car, most people would be apt to say that they want the new car, of course. However, when it comes to actually having to spend the money, more and more often, people are taking a good hard look at late model used cars. Many late model used cars offer all of the same features and comforts of their brand new counterparts, often with low or very low mileage. Most auto dealerships that deal in used as well as new cars offer used car financing as well. Used car loan rates, while usually higher than new car rates, can be competitive as well. Note that many dealerships will not offer used auto finance on a car that is older than 5 years.
Types of Used Car Financing
Used car financing doesn't always have to take place at the dealership. If you are a homeowner, you could consider taking out a second mortgage to pay for your car, which is (of course) secured by your home. If your credit history is good, in the current environment, you can get pretty decent interest rates on a second mortgage. Needless to say, when you go this route, you must remember that you are using your home as collateral and some might consider that to be risky, if they have an alternative used auto finance option open to them.
The most likely route to used auto finance for most people is used car loans. Used auto finance is basically split up into two categories; Used car loans for people with a good credit history, and subprime used auto finance. Borrowers with a good or better credit history can obtain very competitive used car loan rates. Borrowers with recent credit issues, with a fair or poor credit history, in general will have to pay a higher interest rate.
How to Control Used Car Loan Rates
That being said, the subprime borrower can take some actions to tip the scales to their favor.
- Before submitting an application for used car financing or any other used car loans, you should become familiar with your credit reporting bureau report. Note, you are entitled to one free credit reporting bureau report every year from the big three credit reporting bureaus (Equifax, Trans-Union, Experian). You can visit them at each of their websites for more information. Obtain a copy of your credit bureau report from all 3 because some companies will report to 1 or 2 bureaus, but not to all of them. Get familiar with what's in your credit bureau report. If there are any erroneous errors or items that you disagree with, you should write a letter to the credit bureau(s) that is listing the item(s) and inform them of the problems and they should retract them for you. Keep all copies of your correspondence with the credit bureaus.
- Do anything else that you can think of to improve your credit record.
- If you are able to get a co-signer on your loan that has good credit, it’s just like you have good credit and the rates for used car loans can be much lower.
Finally, muster up as large of a down payment as possible. The higher the amount of your down payment, the lower interest rate you will be able to demand from the lender.
