How a Used Auto Loan Differs from a New Auto Loan

In many ways a used auto loan will be similar to a new auto loan. You will provide a down payment, your interest will be calculated based on factors such as your credit score and your total cost will depend on the length of the loan and size of the payments. But there are also a few key differences to note before you look for a used auto loan.

Purchasing from a Dealer

When you buy a new car from a certified dealer, say Nissan or GM, you may obtain financing through the auto company. Many used car dealers also offer loans straight from the lot. Using your dealer offers a few key advantages. First, you can ask questions face to face. Second, if you have any problem with the car that additionally affects the loan, these things are handled with one party rather than multiple parties. There are some downsides as well. A dealer knows it is more convenient to use his loan services. This means his price may be higher than a third party. If you are working with a small used car dealer, you have to be wary of what will happen if he goes out of business. You could be called to provide the balance of the loan immediately. Your loan could also be transferred to another individual at a higher rate.

Purchasing from a Third Party

Some used cars are purchased from individual third parties. Securing auto loans when you are not working with a dealer is not necessarily more difficult. You can approach a number of banks for a used auto loan directly. You may also research online auto loan services. Come prepared with questions about your interest rates and any penalties that may be applied. For example, what penalties may be applied for paying off the loan early? What protections are there if you lose your job? In today's economy, a number of dealers have offered plans to pay your auto loan if you lose your job. You may look for the same protection on a used auto loan from a bank or third party.

Penalties for a "Lemon"

It goes without saying that you should do you research on any used car you purchase. It is easy to check the history of your vehicle or request a report from the used auto dealer. Even new cars can sometimes let you down, though. If your car is a lemon, your dealer may allow you to return it. Ask what will happen to your financing plan if you do so. There may be penalties if you get out of the loan early. You may ask for terms in the loan that require your dealer to pay the balance if major flaws are found in the car.

 


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