How to Get a Used Car Loan
How to Get The Best Rate on a Used Car Loan
If you need a loan to get a new car, you want the best rate, here are a few details to help you prepare to ensure when you are ready to purchase a new or used car you will get the best rate. There are a few factors that determine the rate and how much the bank is willing to lend.
Factors in Used Car Loans:
- Condition of Car
- Credit Score
- Payment on Time History
- Types of Credit on Credit Report
- Ratio of Debt to Income
- Size of Loan
Condition and Age of Car
The condition and age of the car will affect a used car loan as the banks don’t want to lend money for a car that won’t be worth much towards the end of the life of a loan. Picking a newer used car is going to get you a better interest rate and more money towards the loan.
The biggest factor is your credit score. Your credit score is basically a trust score. How much can a bank trust that you will be responsible and pay the full loan off? The interest rate is tied to your credit score as well. The higher your credit score the lower your interest.
Used Car Loans Have Higher Interest Rate
Used car loans usually have a higher interest rate than a new car loan. Every car has a depreciation factor and a bank would rather not issue for a loan for more than the car will be worth throughout the life of the loan. With new cars, it is easy to sell the vehicle if you default on the loan and still turn a profit with little depreciation.
Payment on Time History
What is your payment on time history? Check with Credit Karma to see your payment history. Falling behind on payments is a signal that a bank will check to determine if they will get their money. Try contacting any vendors and see if they don’t report to the credit bureaus and if they do, if they will report a payment on time if you do a partial payment. Try to keep up with your payments as this is a big factor on your credit report.
Types of Credit on Credit Report
Banks like to see various types of loans on your credit history. Having installment loans such as furniture purchases as well as credit cards in good standing are a beneficial factor in your loan. Banks do not like to issue an auto loan with a currently open auto loan on your credit report. It is not impossible to have two open auto loans if your credit score is high or if your current auto loan is almost paid off. Repossessions will show on your credit report and hurt the chances of banks willing to issue an auto loan.
Ratio of Debt to Income
Banks factor the amount of debt you have with your income in determining the rate and amount they are willing to lend. Try to have your credit cards paid off or have a low balance before applying for an auto loan.
Size of Loan
The more money you put down, the lower the loan amount and interest rate. Try to factor in the biggest amount you will be able to put down before shopping for a car. When you are shopping for a used car, the vehicle may be to old or have too much mileage for a bank to issue a loan for the full amount and you may need to put down a larger amount to cover what the bank won’t lend.
Shop Around For Your Car Loan BEFORE Buying Your Car
You don’t have to wait until you go to a dealer to get a car loan. Websites such as Credit Karma and LendingTree offer tools to shop around for the best rate from home. If you looking to get a used car loan, you can check with your bank to see if you can get a personal loan that will cover the full asking price at a better interest rate. Dealerships will usually offer a discount if are paying in cash/cashier’s check.
- Keep Payments on Time – call the vendor to determine if a partial payment will be counted as on time.
- Try to buy the newest vehicle in your budget to get the biggest loan and lowest rate.
- Don’t get your credit checked everywhere – each hard or soft check will affect your credit score. Use a tool like Credit Karma or your credit card’s credit tool to check your score without affecting it.
- Shop around for your car loan BEFORE buying your car. If you are taking your time at home, you will be less inclined to accept the first offer a bank approves as you would inside the dealership. Just be sure not to apply to multiple loans as too many credit checks hurt your credit score.
- Try to put down the biggest amount you can to lower the amount of the loan and interest rate.
- Pay off your credit cards or loans to have a lower debt to income ratio
- If you are looking for the best insurance rate, call the insurance company for models to look out for as some types and models of cars high higher insurance rates.
- Check out our inventory of used cars to get a an idea of prices and selections to help determine what you are looking for and can afford.