Home > Auto Loans > Should I Get a Loan for a Used Car?

Comments 0 Comments

One of the many decisions consumers must make when buying a car is whether to get a new vehicle or a used one. Even though a used car is generally cheaper than a new one, it makes the car-buying process much more complicated, especially if you need to finance it.

Some people argue that taking out a loan for a used car isn’t worth it, because the loans are more expensive, and by the time you pay off the loan, the car you own isn’t going to be worth much. There’s truth to that argument: Interest rates on used auto loans are higher, because the vehicle is collateral for that loan, but if it’s not worth as much as a new car, the lender will charge a higher rate.

“If you default on the loan, they can take it back, and they want to have something of value to that,” said Philip Reed, senior consumer advice editor for car-buying marketplace Edmunds.com.

On top of that, the borrower’s credit score will affect the interest rate, so financing a used car can get pricey.

Reed said the keys to taking out an affordable used car loan are the condition of the car and the length of the loan. For new-vehicle loans, a five-year term is common, but for used cars, a three-year term makes more financial sense.

“There’s also a psychological component that you will find it easier to pay for something that you think of as valuable,” Reed said. In other words: You’re not going to enjoy making loan payments on a vehicle with little value, so consider how that will feel when deciding on a car to buy and how long you’ll be paying for it.

If you can buy the car with cash, that’s likely the best financial decision (assuming you’re not depleting an emergency fund or jeopardizing your financial stability). Oftentimes, people don’t have that kind of money lying around, so if you must finance a used car, shop around for the best deal.

Reed said one of the biggest mistakes a buyer can make is to walk into a dealership and take the first thing they’re offered — dealers call them “get me done” customers, he said. They’re usually people who think their credit will prevent them from getting a good deal and think their best option is to approach a dealer and say, “I’ll take whatever you can get me.”

“There are options for that person, even if they feel that here are no options,” Reed said. “The solution is to find out where you stand — it may not be as bad as you think.”

You can get two free credit scores, updated every 30 days, on Credit.com. Once you know where you stand, you’ll be in a better position to comparison-shop for financing.

“You don’t want to go into a dealer not knowing what your credit score is, or what your situation is, because there are situations in which the loan could be marked up,” Reed said. Getting pre-approved by other lenders will give you negotiating power, as well. “There is a human factor to financing, so if you have the opportunity to meet face-to-face with somebody … it will make a difference. Bring records, and make a presentation.”

More on Auto Loans:

Image: Creatas

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team