Financing Your Dream Used Car with O1ne Mortgage

Buying a used car can be a smart financial decision, offering significant savings compared to purchasing a brand-new vehicle. However, even used cars often require financing. As of October 2023, the average cost of a used car was $26,533, according to Kelley Blue Book data. If you’re considering a used car purchase, it’s essential to understand the financing options available to you. At O1ne Mortgage, we are here to guide you through the process and help you secure the best loan for your needs. Call us at 213-732-3074 for any mortgage service needs.

Can You Get a Car Loan for a Used Car?

Yes, you can finance a used car. However, there may be fewer loan options compared to new cars, and interest rates on used car loans are generally higher. Some lenders have restrictions on financing used cars over a certain age or mileage limit, so financing a classic car or one with high mileage may not be an option. Financing a used car is a viable choice if you can’t afford to pay cash for the vehicle you want.

Where to Get a Used Car Loan

When looking for a used car loan, you have several financing options, including banks, credit unions, auto dealerships, and online lenders. Each option has its advantages and considerations.

Banks and Credit Unions

Banks and credit unions are common sources of used car loans. Credit unions, being not-for-profit cooperatives, often offer lower interest rates than banks or auto dealers. To apply for a used car loan from a credit union, you need to be a member, which typically involves opening and funding an account, along with meeting other requirements.

Auto Dealers

Auto dealerships that sell used cars typically offer financing options, including:

• Dealer-arranged financing: The dealer submits your loan application to several lenders to shop for the best rate. Dealership finance departments may increase the rate slightly to make a profit on the loan.
• Captive financing: The car manufacturer’s own financing company may offer loans on certified pre-owned vehicles.
• Buy here, pay here financing: Some dealerships offer in-house financing designed for customers with poor credit or limited credit histories. These loans are generally easy to get approved for but come with high interest rates and fees and require larger down payments.

Online Lenders

Online lenders operate similarly to banks and credit unions, but the loan application process is entirely online. You can find online lenders that specialize in auto loans or in lending to people with poor to fair credit. Getting prequalified or approved and receiving your funds is usually faster than with traditional lenders, although online lenders may charge higher interest rates.

How to Apply for a Used Car Loan

To apply for a used car loan, follow these steps:

Check Your Credit Score

It’s free to check your credit report and FICO® Score with Experian. For credit scoring models that use a 300 to 850 range, a score of 670 or above is considered good. A fair or poor credit score won’t necessarily prevent you from getting a loan, but improving your credit could help you secure a lower-interest loan. Catching up on late payments, paying bills on time, and reducing your credit card balances can all help increase your credit score.

Determine Your Budget

Check average used car prices on dealer websites or auto-industry sites like Kelley Blue Book and Edmunds to determine a price range for the used car you want. Aim to make a down payment of at least 10%—preferably more. The bigger your down payment, the less you’ll need to borrow. Review your budget and figure out the monthly car payment you can afford.

Research Lenders and Get Preapproved

Shop around for used car loans by getting preapproval from three to five lenders. Submit all your applications within a 14-day period to minimize any negative impact on your credit score. Preapproval will give you a ballpark idea of the loan amount, interest rate, and terms available to you.

Compare Loan Offers

When comparing loan offers, look at the annual percentage rate (APR), which includes interest and fees to show you the total cost of borrowing. Use a car payment calculator to estimate how different loan amounts and terms affect your monthly payment and the total amount of interest each loan will cost. A shorter loan term often means a lower interest rate, although it will increase your monthly payment.

Apply for Your Best Offer

Preapproval isn’t the same as final loan approval, so you’ll need to complete an official loan application to finance your car.

Frequently Asked Questions

What Credit Score Do I Need for a Used Car Loan?

While a higher credit score can help you secure better interest rates, you can still get a used car loan with a fair or poor credit score. Improving your credit score before applying can increase your chances of getting a favorable loan.

Is It Harder to Get a Loan for a Used Car?

It can be slightly more challenging to get a loan for a used car compared to a new car, primarily due to higher interest rates and fewer loan options. However, with proper research and preparation, you can find a suitable loan.

Should I Get a Personal Loan to Buy a Used Car?

While it’s possible to use a personal loan to buy a used car, auto loans typically offer lower interest rates and better terms. It’s generally more advantageous to opt for an auto loan specifically designed for car purchases.

Does Financing a Used Car Build Credit?

Yes, financing a used car can help build your credit if you make your payments on time. Consistent, on-time payments can positively impact your credit score over time.

The Bottom Line

Used car loans typically cost more in interest than new car loans, but a good credit score can help you qualify for better interest rates, lowering your loan costs. Consider signing up for Experian Boost®, a free feature that gives you credit for making on-time utility, rent, phone, insurance, and streaming service payments. Because payment history is the single biggest factor in your credit score, paying these and other bills on time can help pave the way to the used (but new-to-you) car of your dreams.

At O1ne Mortgage, we are committed to helping you find the best financing options for your used car purchase. Contact us today at 213-732-3074 for personalized assistance and expert advice on securing the right loan for your needs.