How to Get a Used Car Loan (Without Getting Screwed)

used car loan

You need a set of wheels. After some research (and a look at your financial situation), you realize the best option for you is a used car. Even buying used, though, you’re not sure you have enough cash for the transaction. You decide a used car loan can help you complete your purchase.

But how do you go about getting that loan? When you buy new, there are dealer incentives and special financing offers, but what about when you buy used?

While you might not get all the same options for used car financing, it’s still possible to get a reasonable loan. Here’s how to do it.

Gather your documentation

Start by making sure you have your documentation in order. Rob Drury, the executive director of the Association of Christian Financial Advisors, says that you likely need the following items when you apply for a used car loan:

  • Driver’s license
  • Proof of income (usually a pay stub, but a tax return might work as well)
  • Proof of residence (often a phone or utility bill)
  • Your Social Security number (so the lender can run a credit check)

In some cases, you might even be able to apply from home. “Many banks and credit unions today take auto loan applications exclusively by phone or internet,” says Drury.

“You might need nothing more than your Social Security number to start the application process,” though you might later need to show proof you can handle the payments before you get the final terms of the loan.

Once you have your documentation lined up, it’s time to see what lenders are willing to offer you.

Start with your bank or credit union

Many smaller local and regional banks have auto loan programs, says Drury. “It’s often possible to obtain favorable terms from your own financial institution. The best rates usually come from smaller or more exclusive credit unions.”

If you belong to a credit union or a community bank, Drury recommends speaking with a loan officer about possibilities. The loan officer might check your credit to make sure you qualify for any current auto loan programs.

After determining that you meet the criteria, Drury says, you will a receive a quote you can take elsewhere. Get the quote in writing, so it’s easy to show to dealers, private party sellers, and competing banks.

Shop around for the best rates

After you have a quote from your institution, Drury suggests taking it to other banks and credit unions to see if they can do better. If they meet or beat the original loan offer, head back to the first bank — you might be able to convince your bank or credit union to sweeten the deal.

Drury points out that, as with most loans, you are more likely to get the best offers if you have good credit and if you don’t have much debt. The better your credit and financial situation, he says, the more loan offers you will get.

Buying from a private party

Paul DeAngelis is a former salesman with years of experience buying cars from private parties, fixing them up, and then flipping them. In his experience, buying a car from a private party requires a little more hoop-jumping when you need a loan to complete the purchase.

“It’s usually easier to just pay cash if you can,” he says. But if you must finance, prepare yourself for higher interest rates.

“Many banks and credit unions quote a lower loan rate if you buy through a dealer,” he says. “Buying from a private party comes with a higher risk that something is seriously wrong with the car and you’ll abandon the loan. So there’s a rate premium.”

You might also be required to provide proof that you are in fact buying the car. For example, you might have to bring the title to the bank after the seller signs it. “A bill of sale is also needed, and the bank may want a copy,” says DeAngelis.

DeAngelis recommends requesting a check from the bank, rather than taking cash to the deal. You have a little more protection with a check, since you can cancel it if the deal goes sideways. “It’s just not smart to carry that much cash with you, no matter what it’s for,” DeAngelis says.

Getting a used car loan through a dealer

Of course, you can buy a used car from a dealer, and that can simplify the loan process as well. All of the pesky paperwork — from title transfers to loan agreements — can be handled professionally at the dealership. The whole process goes more smoothly with this one-stop approach, according to Drury.

Plus, it makes it easier to access offers from multiple lenders at once. “The easiest and best way to finance a vehicle is through a franchise dealership where the car is being purchased,” he says. “Major dealerships normally have dozens of lenders from which to choose.”

However, that doesn’t mean you shouldn’t do a little homework ahead of time. Drury suggests going to your bank or credit union first, even if you buy a used car from a dealer.

“Force the dealership to compete with the terms you’ve already obtained,” he says. “Besides, having another offer from outside prevents the dealership’s finance department from trying to pull one over on you.”

Another advantage to going through a dealership, says Drury, is that you have access to loan offers even if you have poor credit. If you don’t have time to improve your credit, and you’re willing to pay a higher interest rate, dealer financing for a used car might be your only option, since dozens of other programs might be available.

Some dealers will even help facilitate private party sales if a buyer can’t secure financing. “The dealership purchases the vehicle on paper, then performs the sale to the buyer for an extra fee,” explains Drury. “Dealer financing can then be used, making it easier for someone with a lower credit score to obtain financing.”

Bottom line

No matter where you get your used car loan, it’s essential to prepare ahead of time and shop around. While you aren’t likely to find the same deal you would if buying new, you can still get the best possible deal if you come armed with information.

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1 Includes AutoPay discount. Important Disclosures for SoFi.

2 Important Disclosures for Citizens Bank.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal Loans: Fixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 5.19% APR to 11.32% APR (with AutoPay). SoFi rate ranges are current as of July 1, 2017 and are subject to change without notice. Not all rates and amounts available in all states. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 4.99% APR assumes current 1-month LIBOR rate of 1.22% plus 3.95% margin minus 0.25% autopay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2017, the one-month LIBOR rate is 1.23%. Variable interest rates range from 6.02% – 15.97% (6.02% – 15.97% APR) and will fluctuate over the term of your loan with changes in the LIBOR rate, and will vary based on applicable terms and presence of a co-applicant. Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with Citizens Bank at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, Citizens Bank checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Benefit: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
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5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
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