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.”
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.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|5.81% – 15.37%1||$5,000 - $100,000||Visit SoFi|
|6.87% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|5.49% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|