How Used Car Financing Works
While buying a used car comes along with the promise of a lower rate, it still might not be realistic for you to pay it off upon purchasing it. Life comes with many different demands from your bills to other living expenses. The good news is that it is still possible to get a used car and make payments on it in order to save some of your hard-earned dollars.
Used car financing is a popular option, says A Better Way Wholesale Autos, which owns used car dealerships in CT. Whether it’s for those who are on a budget or for those who simply wish to pay off their used car over time instead of putting down a large chunk of cash. With a little bit of saving and a regular commitment, you can be a used car owner without breaking the bank.
Why Finance a Used Car?
If you don’t have much credit, or if your credit score is on the lower end, financing a used car can be affordable and useful. Building your credit can be a stressful experience, but when you can lock in a monthly payment that you can commit to, financing your used car can help you in the long run.
Another reason to finance your used car is to save money. Not everyone has a big savings account that they can tap into to make their down payment. In general, used cars are going to cost you less upfront. When you finance, this amount is cut into a fraction of that. Some people must buy cars quickly and financing a used car definitely gives you the option of being able to get the transportation that you need.
Overall, financing a used car is likely going to be a first-time experience or a one-time experience. In the long run, it just isn’t feasible to continue to do this because of the depreciation. When you buy used, the car has already lost some of its value.
By the time you are ready to sell it, you likely won’t be able to get much money for it. Most people who decide to do this are in a tight spot or just do not have the funds or the credit score to buy new. There is nothing wrong with this, though! Everyone has to start somewhere.
How Does Used Car Financing Work?
To better understand what you are paying for, it is important to do some research on financing. There are two main ways that you can obtain financing for your car — the dealership or the bank. There are pros and cons to each, as seen below:
Pros: Fast and convenient
Cons: Can be high-pressure and payments are usually made up of more interest in the beginning (front-loaded)
Pros: Competitive and no sales pitch
Cons: Can’t get it set up at night or on weekends and adds an additional step to the car-buying process
No matter which option you choose, your financing process will begin with you making a down payment. Depending on any deals that are going on when you buy the car, you will be able to negotiate with the dealership to come to an agreement that works best with your budget. From there, you will be offered financing plans.
Make sure that you pay attention to the APR. Many financing plans promise 0% APR as a promotional rate, but after some time, it can spike and cause you to end up paying more in interest than you are in actual payments.
What Are the Current Financing Rates?
You might be wondering what you can expect to pay when you finance your used car. This is a smart move because you will need to factor the monthly cost into your budget! As of February 2020, the average interest rate is going to vary based on your credit score. You can use the following table to get an idea of how much you can expect to pay on top of the initial asking price:
750+ = 5.23%
700-749 = 5.2%
650-699 = 11.94%
450-649 = 17.33%
449 or less = 18.25%
As you can see, your credit score is going to determine how much you will pay. If you have a lower score right now and having a car isn’t essential, it would make sense to wait until you can boost your numbers before you begin the financing process.
If you can get your credit score up before you do this, you will be paying less money overall. These interest rates can really add up, especially when any promotional APR rates come to an end. You need to be smart with your money and in order to do so, you need to do your own research to decide on when the right time is to finance your used car.