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The Basics Of Used Car Financing

Feb 19, 2008
For most Americans, buying a car requires financing. There are many financing options and just as many, if not more, lenders. Don't get overwhelmed. Most used-vehicle financing abides by the same basic rules.

1. The Financing Rates for Used Cars are Higher than New Cars

The interest rates for used cars are higher than for new cars. Although there are a number of reasons for this, the primary reason is used vehicles are riskier to the lender. They are riskier because used vehicles are more likely than new vehicles to have significant mechanical failure. For example, engine failure or the malfunction of the transmission is more likely to occur in a used car, resulting in a completely worthless car.

2. It is Easier to Get Financing for a New Vehicle

Another fact to consider is that it is more difficult to get financing for a used car than for a new car. The manufacturers of new cars such as Ford, Chevy, and Toyota want to sell their cars. In order to increase their sales, they give special financing to customers to enable them to afford to buy. For example, car manufacturers offer special, low interest rates, as well as rebates. Used cars do not have special financing options such as these.

3. There are More Restrictions with Used-Vehicle Financing

Typically, most banks will not lend money on any used vehicle that has more than 100k miles or is more than 8 years old. These high mileage old vehicles represent much more risk for the lender because they're more likely to suffer a major breakdown. Older vehicles are also more likely to be stolen and "chopped up", making recovery impossible.

4. Credit Unions Are Great Used Car Loans

In just about every case, your local credit union will offer the best financing for a used car. I strongly recommend you join whatever credit union you can. Credit Union interest rates are usually excellent, and they're much more likely to work with you if your credit is bad.

5. Leasing A Used Car Is Usually A Bad Idea

It is really never a good idea to lease a used vehicle. Leases on new and used vehicles are typically structured the same; however, leases on used vehicles have many more fees. The lease on a new vehicle is only a little bit more expensive than on a used vehicle. Why pay almost the same price for a used vehicle? Leases on used vehicles offer much less protection. In almost every case, it is a bad idea to lease a used car.
About the Author
Author Jason Lancaster, an auto industry veteran, developed AccurateAutoAdvice.com. You'll find accurate advice on basic finance of used cars and used car finances.
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