Buying a used car is a little bit more difficult if you’ve got bad credit, compared to those with options as a buyer with good credit. The restrictions on buying a used car with a loan can vary from bank to bank, so hopefully these tips will help those with good credit score the best percentage rate. In my experience, the bigger the bank, the higher the percentage rate on your used car loan, so let’s look at some options.
Factors when getting a loan for a used car include the age of the vehicle, Blue Book value, and obviously your credit score. Generally speaking, the older the vehicle the higher the interest rate will be on your loan. At one point most banks won’t even loan you money for a used car, generally the cut off is 6 years old. So, getting a used car loan for a model year 2003 vehicle will difficult, depending on the bank you use. Also, your interest rate will be higher on the 2003 vehicle than the 2008 used vehicle.
When you get a loan for a used car, the vehicle you purchase is used as colateral to secure the funds. So, once you license your new vehicle the title is sent to the lien holder, the bank. Once you pay the vehicle off, the title is then sent to you. To protect it’s loan a bank will make sure the vehicle is worth at least as much as the loan they give. Therefore a bank will use Kelly Blue Book to decide a market value for the used car, sometimes you can get a loan for 100% of the used car value. As mentioned previously, the older the vehicle the less the bank will be willing to loan you for the car.
At the beginning of this article I mentioned that in my experience the highest interest rates were at the largest banks. Three weeks ago I purchased a 2004 F150 and I needed a small loan (under $5000) to complete the transaction. Interest rates were all over the board on a 48 month term, the highest being from 5/3, a bank I’ve been using for years. Their current interest rate on a vehicle older than 3 years was 9%, which is outrageous, especially for me, a person with a FICO score over 820.
After talking with the loan officer I found out a few of my options. I am a member of a local credit union, which was much smaller than 5/3 Bank, but their interest rates matched their size. They were both small, to the tune of only 6% for 48 months! By doing a little searching around and going with a smaller bank I was able to secure a loan for used cars with a much lower interest rate, saving me hundreds of dollars.
It’s not always this easy, especially if you have less than perfect credit. Furthermore, different areas of the country have different interest rates for small loans, depending on what the market can bare. Considering the state of the economy, finding a good interest rate for small loans can be difficult, but whatever you do, make sure you search around before committing and signing on the dotted line.