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USED CAR LOAN - THE BEST OPTIONS

1.  While the price of a new car will often mean that it is out of the reach of many people, a used car will also be more expensive than most people can afford as an out-of-pocket expense. It will usually be necessary for someone who wants to buy a used car to take out a loan to finance the purchase. There are a variety of lenders who will offer used car loans, such as banks, credit unions, and finance companies, many of whom specialize in this type of loan. Some dealerships will also finance the loan, too. 

2.  Ensure that you understand the contract
Before you sign any papers, make sure that you have some understanding of the loan process. Used car loans tend to be more complex than those offered for new cars, and you will probably have to pay a higher rate of interest for them. The rationale behind this is that there is greater risk to the lender, either that the car will break down completely before the loan is paid off, or that the borrower will default. It will be in your own self interest to approach several lenders to compare rates.

3.  Check the value of used car  
The value of a used car will be determined by the lender, and this is usually based on one of several guides to automobile values. To be sure that the amount the lender has on the loan form is correct, be sure to check out the value of the car yourself. You should also check to see if there are any prepayment penalties or modification terms. What will happen should you default is another factor you should familiarize yourself with. A used car loan can be confusing, so be sure that there are no surprises in the contract you sign.

While most dealerships will depend on some sort of institutional financing, if you buy a used car from a private party, they might be willing to carry the loan themselves. In most cases, a private seller will want the entire price of the car immediately, but sometimes they will be amenable to a used car loan themselves. Both you and the seller should be extremely careful how you handle this, and the terms of interest rate, repayment schedule, and what will happen in case of default should be spelled out in detail.

4.  Credit rating and refinancing options
Your credit history and rating will have a great deal to do with the terms of your used car loan. If you credit rating is mediocre or worse, the terms of the loan will be more restrictive. You will definitely pay a higher rate of interest than would someone with good or excellent credit. A person with a low credit rating will not only have a higher interest rate, but will generally have to make a larger down payment, and larger monthly payments.

In troubled economic times, it can sometimes be difficult to keep up with used car loan payments. When this happens, refinancing the car might provide a solution. A hardship letter should be sent to the lender immediately, explaining why you are asking for a refinance. As a used car may be difficult to sell anyway, the lender may well allow you to refinance your loan rather than have you default. Be sure to send the letter before you have missed a payment.


    

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