Financing a Used Vehicle

Before you start making plans of how you are going to drive down the street in that new convertible, think about your budget (Read more on budgeting a vehicle in our "Preparing a Car Budget" section).  Many people make the mistake of choosing the model of car that they want prior to this step, and then trying to find a vehicle that would fit into their price range.  Sit down and decide how much money are you prepared to pay and how are you going to pay.  Today's market offers you a number of ways to finance your purchase, each one with its own advantages and disadvantages.

Cash. This one is quite simple.  You choose a car, make sure you're satisfied with its condition and performance, then pay the full price.  The good side – there will be no extra payments.  The bad side – you will have to pay a large sum at once.  If this works for you – go ahead and pay the price. You might save some money by using this method.

In cases when you do not have enough cash, you have the option of securing a loan for your purchase.  If you are buying a vehicle from a dealership, you may obtain financing right on the spot. However, it is not the case when you are buying a vehicle from a private party. You will need to arrange financing prior to closing the deal.  You can obtain a loan with a bank or credit union.

Prior to applying for a loan, do a bit of research.  Obtaining your credit report is the best place to start.  The report contains record of your current and previous loans, your payment history, and information from public records.  This information will be used by the creditor to assess your reliability and influence the rate you will get.  Make sure you check your report for accuracy as errors will influence the outcome.  Taking some time to correct these errors or closing previous loans prior to obtaining a new one may save you a considerable sum.

Applying for a loan at a dealership may seem convenient, but what does it really cost you?  The dealer himself does not provide you with a loan, he resells your contract to a third party, which is usually a bank or a credit union. The agencies will be the ones to monitor your loan.  The dealer gets better rates just because he shops for them, so why not do the same?  Try to get some quotes from banks and come to the dealership with a number of options at hand. There are various online services, that allow you to do this without even leaving your home. You just fill out the online application and within a few days you get a response from lending institutions that compete for your contract. When you go in to the dealership with these quotes, the dealer may also offer you even lower rates.  It is all about bargaining.  Research is the key point in this process, you must be well prepared before you actually sign the papers or you might end up paying higher rates.

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