One of the biggest choices you’ll be faced with when buying a used car is deciding how you’re going to finance it. If you don’t have the cash on hand to buy a car outright, then you’ll need to look into alternative financing options. Luckily, there are a wealth of loan options available, so you don’t need to break the bank to enjoy your new set of wheels. Here are our top six tips for financing a used car so you can start shopping with confidence.
Review your credit score & current debt
Your credit score is one of the most important aspects that lenders will take into account when assessing your loan. The higher your credit score, the better your loan terms and lower interest rates you'll be able to obtain. Your credit score may also influence the kinds of car loans you qualify for. If you don't have a good credit rating, however, it's important to know that there are still options available. Getting a used car loan with a bad credit history is still possible, but you'll have to work a little bit harder for it.
Get pre-approved for a loan before shopping for a vehicle
The main benefits of getting pre-approval are that you’ll have a set budget in mind when shopping for your new car and the entire purchase process will be sped up. The financial checks will be done before you purchase the car, allowing you to shop with confidence and ease.
Keep the loan term short
Short term car loans are a great option for drivers who are looking to get a vehicle quickly and save money overall. There are several benefits to getting a short-term car loan, including:
Lower interest rates
One of the biggest benefits of a shorter loan term is that you’ll likely be able to access lower interest rates. This is because your lender will view you as less likely to default on the loan, and therefore as a less risky customer.
Having a lower interest rate means that you’ll pay less over the life of the loan than if you had taken out a longer-term loan. This is because you’ll be paying interest and fees for a shorter time.
Get out of debt faster
Another related benefit is that by paying off your car loan over 2 or 3 years, you’ll be debt-free much quicker than if you’d taken out a long term loan, for example for 6 or 7 years.
While this does mean that your financial commitment will be higher in the short term, you’ll be able to pay back the loan quicker and will be debt-free sooner. Once your short term car loan is paid off, you’ll be able to access your money in a way that you simply wouldn’t be able to with a long term car loan. So get planning how you’ll spend or save it!
You’re able to avoid owing more than the car is worth
With a long term loan, you might have concerns that the amount you owe is more than the car is worth. However, with a short term loan, you can feel pretty confident that you owe less money to your lender than the value of your car.
No matter the length of your loan term, it’s worth keeping an eye on the value of your vehicle because you always want to be in a position where you’re paying back your debt faster than the rate at which your car is depreciating.
You’ll pay less in fees
Finally, with a short term loan, you’ll be able to make some considerable savings in lender fees than with a long term loan because you’ll be paying these fees for less time. Lender fees can include monthly fees, early repayment fees and other administrative charges.
Put down a deposit
If you can afford it, consider putting a down payment on your vehicle loan. This will lower the amount you have to pay back in interest as well as help you avoid owing more than the car is worth due to depreciation. A deposit of around 20% may be a good place to start for many drivers. So, if you were purchasing an automobile worth $20,000 then you would need to have a down payment of around $4,000.
If you’re not in the financial position to put down a large deposit, even putting a small deposit down can help you save money overall. A deposit of any size will help to lower the amount of interest you'll pay over time and may even get you a lower interest rate from your lending institution.
Final thoughts
So there you have it, our six tips for getting the best deal on financing a used car. With so many different types of lenders on the market, and the ability to compare all your finance options online, there’s never been an easier time to get a car loan. Make sure you take the time to assess all your options and ensure you’re getting the most competitive rate with a loan that works for you.
Source URL: https://www.freedomcars.com.au/
