You may be thinking of applying a used car loan to purchase a second hand car that can at least get you to and from your workplace. There are many places you can source these types of loans from including banks, credit unions, auto dealerships, and various online financing companies in your local area. Online lenders have become quite popular for this type of loans due to an increased number of borrowers with less than desirable credit scores who cannot access bank loans. Most online financing companies normally charge a lower interest rate than banks and credit unions. At the same time, the number of online lenders has also increased in response to the increase in borrowers leading to stiff competition among lenders and better rates for borrowers.
For the borrower, used car loans come with a number of benefits. For example, companies offering this type of loans provide flexible terms and conditions with low APR deals. Approval for the loan is fast, easy, and hassle-free since the vehicle you purchase acts as the loan’s collateral. Having the car as collateral effectively reduces the loan’s risk factor which translates to a lower interest rate. There are two types of used car loans namely secured and unsecured loans. Secured used car loans have a lower interest than unsecured loans since they are backed by collateral of higher value.
There are a few factors you need to consider before applying for a used car loan. First and foremost, keep in mind that most financing companies including online lenders will hardly finance you if you are planning to buy a used car that is five or more years old. The reason for this reluctance is because any car that is five or more years old is more likely to break down than one which has been on the road for only two or three years. A very old car has a higher risk of breaking down than a fairly old one.
It is also important to note that banks usually charge a higher APR for a loan meant to purchase a used car than for a new car. Expect to pay close to 2% higher APR for a used car loan than you would for a new car loan. However, the interest rate is lower among online lenders. It is common to pay the same interest for a used car loan among online lenders as you would for a new car loan elsewhere. Most importantly, avoid jumping into the first offer you get from the first company you come across while browsing online. Ask for different quotes from different lenders including banks, auto dealerships, and credit unions before you make your decision. Take time to consider important factors such as the time you need to pay the loan and whether the used car you want to buy is worth the entire cost of the loan.