The Basics Of Used Car Financing

If you're like most Americans, you've decided to arrange financing in order to buy a car. There are lots of different lenders and financing options, but for the most part all used vehicle financing follows the same basic rules:

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

Loans on used vehicles have higher interest rates than new vehicles. Lenders increase interest rates with the risk of the loan. There is more risk involved with lending money on a used vehicle because it is much more likely that a major mechanical problem will occur. A used vehicle is much more likely to have engine malfunction, causing the car to become totally worthless.

2. Financing for a Used Car is More Difficult to Get

Oftentimes, it is much easier to get financing for a new vehicle than for a used one. Chevy, Ford, and Toyota manufacturers boost their sales by offering great financing options to their customers. Rebates and low-interest rates are two such options that are not offered with used-vehicle financing.

3. Used Car Financing Is More Restrictive

Most of the time, banks will not finance used vehicles with more than 100,000 miles or that are more than 8 years old. High mileage translates to mechanical failure and expensive repairs. This is too risky for the lender. When stolen, older vehicles are likely to be taken apart and sold, making it much more difficult to recover them.

4. For Best Used-Vehicle Financing, Join the Local Credit Union.

Local credit unions typically offer the best financing on used vehicles. Join the local credit union if you are considering purchasing a used vehicle. They probably offer the best interest rates. Credit unions may offer financing to those with bad credit when other lenders may not.

5. Leasing A Used Car Is Usually A Bad Idea

Almost always, it is a bad idea to lease a used car. Although the lease on a used car is structured like the lease on a new car, they usually have more fees. In addition, the lease on a new car isn't that much more expensive than the lease on a used car. How does that make sense? Furthermore, customers don't get the same protection on used car leases that they do for new cars. Leasing a used car is just a bad idea.