Depending on your credit qualifications, used car dealers may be able to offer you the best financing options on your next vehicle. While many people shop diligently for the best price on a vehicle, they may be less likely to pay close attention to the overall cost of financing. A lack of attention to detail may cost thousands over the life of the loan.
Check Your Credit Score
Most used car dealers have relationships with local and national financial institutions that allow them to offer attractive financing deals to the most qualified customers. By knowing your credit score, you’ll have a better idea of what options will be possible. The advertised terms, like “$0 down and 0% financing” are offered only to the most qualified buyers. These deals may be more affordable than a personal loan through your local bank or credit union, so if you have a solid credit score, it’s worth looking into dealer financing as an option.
Don’t Pre-Judge Your Ability to Get Financing
For those with a few blips on their credit radar, the best rates may be unavailable. That doesn’t mean, however, that you can’t drive away from the dealership in a reliable, late model pre-owned vehicle. It just means that you may have to be more creative and flexible in pursuing your financing options.
The first stop for any customer should be their local bank or credit union. Banks are less likely than credit unions to offer the best financing terms, but during certain seasons of the year, most notably spring and fall, some banks run “loan sales,” offering personal loans at reduced rates. A personal loan may be more affordable at these reduced rates than dedicated auto financing.
Choose the Shorted Term
When considering financing options, choosing a longer term may seem like an attractive choice. Used car dealers often offer financing packages that provide a choice between a three-year or five-year financing plan. While the longer term allows lower monthly payments, it may cost more in the long run. It’s important to consider the overall cost of the financing option chosen, not just the amount of the monthly payments.
If a traditional loan isn’t an option, check with your dealer to see if there are special financing deals available. Some dealers offer special options for people trying to rebuild their credit. These loans may cost more over the long term, but regular on-time payments are reported to the credit reporting agencies, which helps to bring up your credit score.
If traditional financing seems out of reach, it may be necessary to seek more creative ways of financing your next vehicle. Even if a financial institution won’t lend you money, family or friends might be willing to help. It’s important that any agreement be made in writing, with clear repayment terms spelled out. Another option is for a family member or friend with a strong credit score is to co-sign. A co-signed loan helps rebuild credit, but remember that if you default on the loan, the co-signer will be held responsible for the balance.