Bank Used Car Loan Alternatives

For any number of reasons a bank used car loan may not be an option for financing your vehicle purchase. If you're buying an older used car, the bank's lending criteria might prohibit loans on vehicles manufactured before a certain year. You may decide not to borrow from a bank where you have existing loans, preferring to borrow from diverse sources. If you're looking for an alternative to a bank used car loan, plenty of options are available.

Financing Through an Auto Dealer

An auto dealer is among the easiest-to-access alternatives to a bank used car loan. Whether  you are dealing with the "pre-owned" department of a new car dealer or a local stand-alone used car dealer, these businesses have the motivation, resources and experience to get you in a car quickly.

  • Motivation: Contrary to the way it was years ago, dealers are not particularly interested in an all-cash offer from you. Forty years ago, dealers financed cars less frequently, preferring to make money on a long-term relationship with you by selling you your next car and repairing your current car. Today with competition from the Internet driving dealer prices ever downward dealers have little expectation of developing a relationship with you that will lead to future sales. A financing deal ties them into the long-term profit.
  • Resources: Dealers receive incentives from auto manufacturers that allow them to offer below-market interest rates. Dealer rates often are lower than the rate on a bank used car loan. However, buyers need to be aware of any hidden costs, fees or terms that can negate that benefit.
  • Experience: Dealers only loan on vehicles. They know how to qualify you quickly.

Be aware that dealer financing typically has higher interest rates than the rate on a bank used car loan. Make certain you understand what your rate becomes after a low initial rate or "zero interest" rate period expires.

Borrowing From a Credit Union

Credit unions are not-for-profit institutions that operate for the benefit of their members. Compare this to banks which are for-profit institutions that must maximize return to their shareholders, or owners, if they want to stay in business. That profit comes from borrowers. If you belong to a credit union, you are both an "owner" and a borrower. Often you can qualify for very competitive interest rates and receive better terms than on a bank used car loan.

In many states, membership requirements for credit unions have been relaxed so that you need not belong to a specific organization or work for a specific company to join.

Individual Financing

If you don't qualify for traditional financing for a bank used car loan, from a credit union or even from a dealer, you still have the option of borrowing from an individual. These loans-- often from family members--show up on no credit reports and so cannot help repair a credit rating. However, as an advantage, family members might be willing to charge little or no  interest.

Additionally, a motivated seller might be willing to finance a used car purchase. Typically, a large down payment is required and the seller will keep the title and require proof of insurance.

Individual borrowing is not ideal, but it is an alternative to a bank used car loan.

Borrowing With Bad Credit

There are auto dealers who specialize in financing for borrowers with bad credit. Consider this only as a last-resort alternative to a bank used car loan because these dealers demand very high interest rates to offset their risk for lending to a person with bad credit.

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