Used Car Loan FAQ

Purchasing a used car with a loan is very similar to using a loan to purchase a new car. The main difference is that many used car dealers are able to provide financing for people who present a higher credit risk. If you have been thinking about a used car loan, the following FAQ may help you make a more informed decision.

Is it More Expensive to Finance through a Dealer?

Direct dealer financing usually carries a higher interest rate than financing through a lending institution. Borrowing from the dealership is not always the most stable way to finance a car, either. If the dealership should close or relocate while you are still paying off your loan, your loan may be transferred to a different lending institution with different regulations. It is also difficult to refinance a loan held through a dealership. The interest rate that you begin your loan with is the interest rate that you are stuck with for the duration of your payments.

Are Bank Loans Harder to Get?

Financing through a bank or credit union is the most affordable option when you want to buy a new car. Lending institutions can tend to have higher expectations from customers before they will make a loan, though. If you have a decent credit rating, you will receive a more flexible loan through a bank than through a dealership. If your credit is bad for any reason, you may have more luck finding a used car loan through the dealership instead. If your credit rating changes significantly while you are paying on your loan through a bank or credit union, you can request a refinance so that you can reduce your interest with your improved credit.

What are the Insurance Requirements with a Loan?

In almost any used car loan agreement, you will be required to carry full comprehensive coverage on the vehicle until it is paid off. While you are making payments on the loan, the lending institution that loaned you the money technically still owns the car. It is in the bank’s best interest to make sure that the car remains in good condition so that it can be sold again if they ever need to repossess it. Comprehensive insurance coverage allows you to make cosmetic or mechanic repairs as necessary to keep the car in good condition.

Is Refinancing an Option for a Used Car Loan?

Refinancing can have some upfront costs, but they are worth it if you can reduce your monthly payments. You will have to have the car appraised so that the refinanced loan reflects the car’s real value. Your bank may also charge you a fee for the process of renegotiating the loan. In many cases, though, a refinanced loan can save you hundreds of dollars a year in interest payments. Customers who are paying on five or six year loans can refinance within the first two years and save a great deal of money on their used car loans. is an online information source, offering tips and less-than-obvious ideas for saving money and slashing costs.

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