What are the Benefits of Used Car Loans?

Used car loans, as with every other kind of borrowing, gain you the use of an asset now that you typically could not afford, if you had to pay cash. You pay more in the long run because of interest, but you have the asset in your possession immediately. The following information outlines four benefits of obtaining used car loans to get the used vehicle you want.

More Car for Your Cash Flow

With certified pre-owned car programs and increased costs for new cars, used cars are a low cost option for transportation. Among the most popular used car models; the average price for a car is less than five years old and ranges between $16,000 and $23,000. Consumers very rarely have that amount of cash lying around to purchase a car. Borrowing for the purchase of the car, can get you more car for your money.

Less Depreciation

A challenge of used car loans and new car loans is that the moment you complete the loan and take possession of the vehicle, you owe more than the car is worth. This is called being upside down in a loan. The largest depreciation in value of a car happens in the first year of ownership. This is a danger zone. If you need to get out of the loan for any reason, you cannot sell the car and pay the loan, putting you in default danger.

Used car loans offer the benefit of less depreciation. Most of the car's lost value has already occurred, if you buy after the first year, so you are less upside down from the beginning and may, by loan's end, be in a positive loan-to-value position, depending on the car's resale value.

Easier to Obtain

Used car loans are easier to qualify for. There are two reasons. First, typically you are borrowing less than the value of a comparable new car. Second, the risk of the lender is less because the value of the asset is less and depreciation factors into this as well.

With dealer incentives, new car loans are also in reach for most, but those with marginal credit especially will find it easier to get car financing for used car loans.

More Alternatives

Getting used car loans from a used car dealer typically is your most expensive option, there are more alternatives when shopping for a used car. New car dealers sell used cars. Independent used car dealers also sell and finance. Rental car companies sell their used fleet and often offer used car loans. Individuals sell used cars for which you can get used car loans from banks or credit unions.

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