5 Tips for Financing a Used Car
Auto financing is a great option for those who are looking to purchase a used car. However, the process isn’t always that straightforward. Regardless of where you will be purchasing the used car from or the make and model of the car, you will need to choose the right auto financing option.
What’s Your Credit Score?
Before you can either consider a loan provider, you will need to know your existing credit score. Check your credit as soon as you decide that a loan is in your future. Your credit score, also referred to as a FICO score, estimates your chances of repaying a debt. The typical American has a score of 675, with scores ranging from 300 to 850. Top-tier scores range from 700 to 850, near-prime scores range from 620 to 700, and subprime scores range from less than 620 [source: FinanceBuzz].
How do you figure out where you belong? Examine your credit report from Equifax or Experian, which are the major credit agencies. You may get a free report from each bureau once a year, thanks to the Fair and Accurate Credit Transaction Act. The report will provide you with an overview of your credit position, but the ultimate score will be determined by your credit score.
The report might give you an indication of your credit score, but you’ll have to pay for the exact score. If you’re married and your spouse is going to be on loan with you, make sure to check his or her credit score as well.
There is a 50% risk that your report may contain an error. Correct any inaccuracies and double-check that the changes are reflected in your report. It might take anything from 60 to 90 days to update obsolete information. Additionally, credit bureaus must be able to substantiate negative marks on your credit report. If your credit report isn’t great on paper, ask for proof just to be sure.
Also, spend at least two weeks looking for a loan because each time you ask for a loan, the lending institution will ask for your credit report or pull your credit report, which might lower your score. However, any inquiries made during a two-week period will be counted as one.
How Much Can You Pay?
When applying for auto financing, the most critical step is determining how much you can afford to pay. In general, you shouldn’t spend more than 20% of your take-home income (the amount on your paycheck, not your starting salary) on all of your household’s cars, which includes your car, your spouse’s car, and that old convertible parked under the tarp in the garage.
Of course, a young graduate fresh out of college who is living rent-free with family may be an exception to this rule. Now, before you start fantasizing about a fully stocked luxury SUV, bear in mind that the 20% rule takes into account a lot more than the car’s purchasing price.
Obtain Multiple Quotes
Even if you plan to seek dealership financing later, you should compare quotations from the first three categories of lenders first. If you agree to automatic loan payments from a checking account at your own bank or credit union, you may get a better rate. You can compare vehicle lenders on the internet as well.
If you choose to buy your automobile through a private party rather than a dealer or broker, check with each lender you are considering. Some places have restrictions on where you may buy an automobile. Before you apply for a loan, you should familiarize yourself with the terminology used in vehicle finance.
Get the Loan Pre-Approved
You can be pre-qualified or pre-approved for a loan when you apply to lenders. These are distinct, and it’s critical to understand what each one entails. Based on a limited amount of information the lender knows about your credit history, pre-qualification offers an estimate of the rate and loan amount you could qualify for. Pre-qualification simply necessitates a “soft” credit check, which will not affect your credit score. However, after a comprehensive credit check is completed, the anticipated rate you are offered may alter significantly.
Pre-approval is a higher level of qualification than pre-qualification. It necessitates a “hard” credit pull, which lowers your credit score briefly. The anticipated rate should be closer to the final rate because the lender has more information about your credit history.
Regardless of how much you pay for the used car, you certainly don’t want to get stuck with a lemon. Researching various online outlets to find out what’s available and what you can afford is a smart approach to see what’s available if you’re in the market for a used automobile.
You’ll have a decent idea whether you’re overpaying or not, and you won’t have to hurry into buying a car if you don’t believe it’s the appropriate one for you. If the price isn’t correct, there will always be plenty of samples available if you’re looking at mainstream models.
It’s best to look at automobiles in nice weather, and particularly in daylight. Inspect everything in the interior and exterior of the car. You can expect scuffs in older vehicles, which is why it’ll be important to check that all of the features are functioning properly. Is the air conditioner blowing chilly air and the electric windows are open at the same time?
An automobile should be half the price it was new at three years old, depending on the type and mileage. But it should still have plenty of life remaining in it. It’s a generalization, but data from warranty providers shows that automotive dependability declines after 5 years, so that’s a good time to trade in your old car and start looking for a new one.
If you’d like to get more information on making the right choice when getting a used car online, then all you have to do is visit PA Auto Sales for all the latest on used vehicles online along with some great tips on getting the most bang for your buck when purchasing a used car online.