Finding the Right Used Car Loan: Five Guidelines

Finding the right used car loan goes far beyond finding a lender and shopping for an interest rate. There are various factors that impact finding the right option for you...including finding the right used car. If you are in the market for a used car it is best to shop around for competitive interest rates. Typically, credit standards are fairly high and you will need to prove that you are in good standing. You may find a great deal and a great price on a used car. However, if your credit is not in good shape, you may be considered a risk to the lender. A negative credit report will always translate into higher used car loan interest rates. Under certain credit conditions, used car loan interest rates can be extreme.

Steps to Finding the Right Used Car Loan

Step 1 -Know Your Budget

What is your budget for your used car? Be realistic about your financial situation. You need to also consider insurance and gas prices. Can you afford the type of car that you are looking for? Do you need to adjust your selection? Once you have your mind set on selection you will not have to worry about a salesman directing you to certain cars. There may be more to benefit the salesman than you.

Step 2 -Target Your Desired Car

What kind of car do you desire? What cars fall within your specified budget? Know what you want before you shop. Plan your shopping and know specifically what you want before you hit the car lot.

Step 3 -Be Patient in your Search

Take your time. Don't rush yourself. Do your research. Get familiar with car values and interest rates. Use the Internet . . .  it is critical to finding a lender to finance the right loan for you. There are numerous players in the used car loan business. Bankrate.com provides a matching service that links lenders with applicants.

Step 4 -Keep Good Credit

Keep in mind, especially when you have lenders compete for your loan, that most will check your credit report. If you are just recovering from a poor credit history every credit report generated will lower your credit score. Typically, every inquiry will lower your score between five to six points. Before you begin your search know what your credit score is. If you know your situation well before credit history is pulled you can present your scenario to a prospective lender. Therefore, you need not be concerned about dropping your score prior to entering into discussions.

Step 5 - Consider Your Local Bank

Don't rule out your existing bank or credit union when considering a used car loan. If you are able to demonstrate competitive bids to your lender you may be able to negotiate a better deal. Competition can sway even the savviest lender into offering you a great deal. Securing a good used car loan rate tailored to your unique situation is easier than you may think. Credit unions typically offer rates between 5-5.5%. A good loan rate should never exceed 5.5% provided that you have a good credit rating. If pays to shop around in your local market first. You may find banks and credit unions offering incentives to secure new customers. Low interest car loans are typical enticements. There are several online lenders that offer comparative low interest rates. The more pre-approvals that you receive the better position you are in to negotiate with other lenders. Overall, in today's market, with good credit, good used car interest rates range between 5-6.5%. If you diligent, you may even be able to persuade a lender to grant your used car loan at 4.5%.

Assuming that you are creditworthy, it is likely that you will be granted a loan rate within the range stated above. However, be aware of other factors that can affect your loan rate. The length of the term of your loan and the year of the vehicle can make a significant impact. It is not uncommon for interest rates to be higher on older cars financed for extended periods. Keep in mind that loan rates can fluctuate very frequently. In addition, regionally, rates can vary based on the economic conditions of various markets. Staying on top of these rates through online sources is critical to securing a low interest rate.

 


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