Roughly 5 million passenger cars are sold every year in the United States. While that number isn’t as impressive as it was in the mid-’80s, it’s certainly respectable, especially since car ownership has hit a near saturation point.
Since you’re reading this post, we’re guessing that you’re interested in buying a vehicle but are unsure about how getting a loan for a used car might go. If that’s the case, you’re in the right place!
Whether you have great credit or have a score that needs some TLC, there are steps you can take to give yourself the best chance of getting your hands on great financing options. Here’s what we recommend.
1. Know Your Number
Jaw-dropping vehicles are plentiful in today’s car market. These vehicles are ones that salespeople will be more than happy to get you into, even if they’re not a good fit for your life situation.
Our advice to you is to avoid “the pitch” by choosing a car you can comfortably afford. Doing so will not only make your odds of keeping your vehicle better, but it will also make the loan approval process simpler.
As a general rule, plan on spending no more than 15% of your monthly pay on your car expenses. Factor miscellaneous costs like insurance, gas, and maintenance into that figure as well.
2. Check Your Credit
There’s nothing worse than arriving at a car dealership, falling in love with a vehicle, and then finding out your credit is below what’s required to drive off the lot. The best way to manage your expectations is to have a ballpark idea of what your credit score looks like.
Several free ways to check your credit exist online. You can also request your credit report for free through the FTC. Credit Karma will also do it for free (although you’ll have to sit through a ton of ads). Annualcreditreport.com is also an excellent resource – you can check your score there, in all its gory details, once a year for free.
3. Have Vehicles in Mind
With your budget and credit score noted, you should be able to start window-shopping for vehicles. Resources like AutoTrader, TrueCar, and KBB are all great for locating vehicles that meet your criteria.
Do some research online to find used cars you might like that are selling within your vicinity. With a shortlist of possible purchases in-hand, you can visit car lots with a sense of direction rather than letting salespeople direct your experience.
4. Start With Flexible Name Brand Dealers and Work From There
It can be tempting to head straight to a small car lot that loudly advertises working with sub-prime borrowers when you have poor credit. Rather than starting at the bottom though, we recommend aiming high and working your way down, if needed.
Nationally branded used car dealerships like CarMax and Carvana have sub-prime credit options that may extend you a better deal than non-franchised dealerships will.
5. Compare Your Financing Options
The beautiful thing about getting a loan for a used car is that no single entity holds the keys to your car-buying future. There are thousands of cheap car loans offered by a countless amount of lending institutions.
You can get car loans through banks, credit unions, online lenders and even directly from dealerships.
Each lender will present a different deal so take a moment to weigh your options before seizing a financing offer. By being patient, you’ll enable yourself to secure a deal that could save you much more over the life of your loan than you thought possible.
6. Grease the Wheels With a Down Payment
Poor credit borrowers can substantially raise their chances of getting approved for a loan by lowering the amount of money they’re asking for. This can be achieved in two ways.
First, you could pick a cheaper car. Second, you could bring a cash down payment to the table. If you have your eyes set on a particular vehicle and don’t want to comprise by getting something cheaper, bringing cash to the table is the best way to go.
Even a down payment as low as a few hundred dollars can sway a lending decision so never feel shy about offering what you have and seeing what happens.
7. Find a Co-Signer
Co-signers are people that have good credit who are willing to sign your loan application with you. By having a co-signer on your application, you can increase your odds of approval substantially since lenders can hold your co-signer liable if you default on your payments.
Given the amount of risk co-signers take on by putting their names on loan applications, you’ll likely need to have a great relationship with them to get their help.
8. Don’t Get Discouraged If Approvals Don’t Come Easily
Thousands of people get rejected for loans every year. The best advice we can give you if you’re not getting the results you’re looking for is to re-assess your strategy.
Maybe that means finding a cheaper car, rehabbing your credit or building a sizable down payment. Whatever it means for you, focus on a path forward rather than dwelling on obstacles.
Getting a Loan for a Used Car Hinges on Your Willingness to Put in the Work
For some people, getting a loan for a used car will come easy. For others, the process of securing financing will be difficult.
No matter what your path looks like, if you’re willing to put in the work, we’re certain that there’s a borrowing opportunity out there for you.
If you’d like more information on loans, the car-buying process or similar topics, our team can help. Just continue browsing more of the content we have featured in our blog to fulfill your need to know!
As a final thought – its a bit old fashioned, but you could always consider saving up the money before you buy the car. If you saved you would not have a loan payment and you’d have built up the personal discipline required to save. If this idea appeals to you, consider a challenge like the 52 week money challenge (Young Adult Money has an excellent write up of this). Or you can always get an app like digit.co.
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