Used Car Loans Guide
Knowing the fundamentals of used car loans prior to buying can make your financing process much easier. We've put together this used car loans guide to help you make your decision.
Sources of Used Car Loans
The primary sources of used car loans are third-party lenders, dealerships, and home equity loans. The benefits and drawbacks of each are explained below.
- Home equity loans. Home equity loans let you borrow against the equity in your home to purchase a used vehicle. Typically, home equity loans can offer lower rates than traditional used car loans because they are secured against your home. However, home equity loans can be risky for this very reason-you will lose your home if you fall behind on payments.
- Dealerships. If you buy your used car from a dealership, the dealer will usually also offer used car loans. Dealer financing can be convenient and offers the perk of one-stop-shopping, as you purchase and finance the car at the same location. Conversely, dealer financing is notoriously unreasonable. Dealers often make more money on the financing of a vehicle than they do on the actual sale, which doesn't bode well for your used car loan. More often than not, dealership financing is the most expensive source for used car loans.
- Third-party financing. Third-party financing includes banks, credit unions, and online lenders, like our lending partners. Banks and credit unions can typically give fairly good deals on used car loans, but they lack the convenience and competitiveness that an online lender could offer you. With online third-party lenders, you can apply, qualify, and receive your used car loans all from the comfort of your home. You will also enjoy lower rates because our lenders are forced to compete for your business directly, unlike banks and credit unions.
Down Payments
Because our used car loans are flexible, you might not even be required to make a down payment. However, the larger your down payment, the lower your monthly payments will be and the quicker you will be able to pay off your loan. Experts usually recommend a down payment of about 20%. If you can't afford this, scrape up as much money as you can and then keep the terms of your loan as short as possible. This will save you money on interest and help prevent you from owing more on the car than it's worth.
About APR
The best way to compare used car loans and to gauge how much you're really paying is to look at the APR. Don't fixate on other numbers, like monthly payments. APR is the best representation of the total cost of borrowing. Compare your quotes on used car loans on this basis as well as the loans' terms (life of the loan).
For tips on choosing your used car wisely, see our How to Buy a Used Car page.
