A preowned vehicle can be the right choice for your next car. Find out how you can finance a used car.
If you don’t have the full amount to buy your next car, here are some financing options available to you.
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4 types of loans you can use for a used car
You have several options when it comes to loan for a used car. Some of these include:
- Secured car loan. With secured car loans, lenders use your car as collateral. A secured loan is helpful if you have cad credit and can’t get a loan at a decent rate. However, if you default on the loan, the lender can repossess your vehicle. Always read the terms and conditions to see if you can use your used car as collateral, as some lenders often have restrictions to this.
- Unsecured personal loan. Unsecured personal loans are generally offered to customers with good credit. These loans don’t require you to offer your car as collateral for the loan, but can results in higher interest rates and additional fees.
- Home equity finance. Home equity financing is another option that allows a homeowner to borrow against the equity value of their home. This option can be risky because you’re putting your house up as collateral.
- Dealer finance. Nearly every dealership you walk into will offer in-house or third-party financing to assist you in buying a car.
How old of a car can I finance with a used car loan?
If you want to use your used car as security for the loan, here’s the criteria for what each loan provider will accept:
Should I put a deposit on a used car?
A deposit may be requested by a dealer if you don’t have financing available after you negotiate the purchase price, the dealer needs to order your vehicle from a factory or if the dealer you’re working with needs to exchange vehicles with another dealer in order to match your purchase requests.
In any of these cases, it may be necessary to leave a deposit for your used car, but that doesn’t mean you have to settle for the dealer’s terms. Every step of a car purchase can be negotiated, and that includes your deposit. You’ll want to make sure that the deposit is refundable if the deal falls through.
Read the terms of your contract carefully. If the paperwork says a deposit is nonrefundable, make sure you have the sales manager change it so that it will be refunded for any reason. If you plan on having the vehicle inspected or might not be able to secure financing, you’ll also want these contingencies outlined in your contract. This way, if you have to back out of the sale for any reason, the dealer can’t keep money it didn’t earn.
If you’re sure you need to put down that deposit, pay for it with your credit card. This way, you can dispute the charge with your credit card company. Paying with anything else may make it harder for you to get your full deposit back, even if it was 100% refundable.
Stay safe when issuing deposits to a car dealership. This isn’t the same as a down payment, and your deposit should not be listed as a partial payment. Although you may have to put up a deposit, try to avoid it if you can.
What are the pros and cons of using a car loan to buy a used car?
- You don’t need the full amount to buy the car.
- Loans help you build credit.
- Compared to leasing a car, taking out a loan helps you build ownership of your car.
- You can get a great price on a used car by negotiating in a private sale or at a dealership.
- You have various financing options to consider — both secured and unsecured.
- Could pay a high monthly payment with high interest rates.
- Used car financing can be more expensive and restrictive than financing for new cars.
- You could be buying a car with lots of problems.
- The age of the used car affects its resale value.
3 steps to comparing your auto finance options
Securing the right finance is as important as finding the right car. Some car loan terms extend up to seven years, so it’s quite a commitment. Here’s what to look for when looking for the right financing:
- Interest rate. The first thing to consider is your lenders interest rates. Compare your options to find the most competitively priced and packaged loan.
- Fees. Lenders can charge a range of fees on used car loans — termination fees, origination fees, loan maintenance fees and more. Review all the extra costs that come with your used car loan.
- Flexibility. Can you make additional and lump-sum payments during your loan term? Are you able to repay your loan early without penalty?
How long will I pay my used car loan?
The average used car loan is shorter than a loan for a new car. Loan term varies between lenders, but it’s usually between two to seven years for variable rate loans, or one to five years for fixed rate loans. Longer loan terms can make your monthly repayments smaller — but you’ll pay more interest, making your loan more expensive in the long run.
Can I get a used car loan cheaper than dealership finance?
Low-interest car finance deals can be tempting, but keep in mind low, ongoing repayments don’t automatically mean a cheaper loan.
Take a look at the following features of both the loan and the dealership finance offer to find out which one is the better deal:
- Interest rates. Dealership finance generally has lower interest rates to get you in the door. But if you shop around and find a used car loan with lower rates and reasonable loan terms, it may be the better choice.
- Down payments. Dealerships financing generally requires a down payment and is usually a couple of thousand dollars.
- The price of the car. Sometimes dealerships offering good financing promotions can’t give as good a deal on the price of your vehicle — it pays to negotiate the price before securing your loan.
- Extras. This shouldn’t affect the price of the actual finance amount, but you should consider the value of extras like additional insurance or an extended warranty.
Whenever you apply for a used car loan, take the time to read the terms and conditions. It’s important to be aware of all fees and charges, as well as any restrictions on the vehicle or loan.
A used car can be a reliable option when you’re looking for your next set of wheels — just make sure you get the right used car financing.