Auto Financing Options to Consider When Buying a Used Car
For most consumers, purchasing a used car is a better economic choice than buying a brand new model. The value of new cars depreciates over a short period; yet, you must pay the full cost, which also includes expensive financing. If you are one of many feeling the pinch of the current economic climate, financing a used car may prove to be a favorable solution.
Cash is not the only option for purchasing a used car. There are several auto financing options that you can explore. You want to save money with a used car purchase. High interest rates and fees can defeat that goal unless you investigate what various lenders offer. Understanding the various financing options can become a complicated task.
The following information simplifies the auto financing process of three possible options: car loan, credit card and a payday loan.
Most auto financing loans come from a local bank, credit union or car dealer – known as a buy here-pay here option. You should obtain a copy of your credit report before applying for a loan. Review the report for mistakes or outstanding bills that might hinder your chances for loan approval. Improving your credit report can strengthen your negotiating position for the best interest rate.
In most cases, credit unions have the lowest interest rates for used cars. Certain rates reflect offers for consumers with high credit scores. Lower credit scores often receive higher interest rates, which is another reason to clean up any issues on your credit report.
Additionally, you should select the type of used car you want to buy. Research prices, safety issues and other features that typically determine the purchase price. This information may also affect the cost of insurance, which you will need to have before driving away with your new, used vehicle.
2. Use Your Credit Cards
Some people may frown upon the idea of using a credit card to purchase a used car. However, this can be a viable financing option if you use the card to your advantage. This is especially true if you have a credit card with a low interest rate, which can be much less than the typical finance charges for a three to five year bank loan.
In some cases, the minimum credit card payment is much less than a regular car payment with a auto finance company. The payments are fixed for the duration of the loan term. If you are late or unable to make a full payment, you jeopardize your credit history and ability to keep the car.
Generally, a credit card purchase is unsecured. Therefore, if something occurs that prevents you from making a credit card payment, the credit card company will not repossess the car. Loans from the bank or credit union are secured, using the car as collateral for default.
Not having to wait for approval is another good reason to use a credit card. There is no need to discuss finance rates and applications. To the dealer, your credit card is the same as cash. For this same reason, financing a used car with a credit card also increases your bargaining power. You are making an outright purchase of the vehicle.
Another unconventional way to finance a used car is with a online payday loan. Bad credit issues may prevent approval for a bank loan or having a high credit card limit. Payday loans often have a higher interest rate than any other option; however, it can solve the immediate issue of not having transportation.
Regardless to which auto financing option you select, make sure it is one that is manageable and solves your transportation needs. Keep in mind with both the credit card and payday loan option that you can get yourself in big trouble if you don’t know for sure you can pay them off within a reasonable amount of time! We do not recommend them if you don’t plan on paying them off soon and rack up sometimes several hundreds of dollars in interest and fees.
Have thoughts to add?
Know of any other options or thoughts to the ones we’ve provided? Please comment below!