Looking for a used car? Compare used car loans on interest rates, fees, features and more.
What is a used car loan?
To help finance your “new” set of wheels, used car loans are a type of personal loan that allows you to purchase a used car that is usually over a certain age – up to about seven years. One of the main reasons lenders put an age limit on used car loans is to try to minimize or avoid risk. Lenders therefore want to be sure that the used car you intend to buy will survive the term of the loan.
When you take out a used car loan, the lender will lend you the money to cover the purchase price of the car. You are then required to repay the loan amount, plus interest, in regular installments over a predetermined period of time.
How to compare used car loans?
Like any form of financing, lenders offer several products to meet a variety of consumer needs, so it’s important to consider a range of factors when shopping for and comparing used car loans.
Secure vs Insecure
A secured loan is secured against the value of an asset. Car loans are one of the most common forms of secured personal loans because the car itself can be used as collateral. Secured car loans will generally have lower interest rates than unsecured car loans because they are considered less risky for lenders.
When it comes to used cars, age and condition are two key factors that can determine whether you might qualify for a secured loan. If the lender is not satisfied that the value of the car is sufficient to secure the loan amount, you may need to offer an alternative asset as collateral or opt for an unsecured loan.
Auto loan interest rates determine the amount of interest a borrower will pay over the life of the loan. If you opt for a fixed interest rate, your interest rate will remain the same for the duration of your loan. If, on the contrary, you choose a variable rate, the rate is likely to fluctuate over time and depending on the market. Fixed rates can often make budgeting more manageable, but variable rate loans tend to offer more flexibility.
A lump sum payment is an agreed lump sum paid to your lender at the end of your car loan term. While lump sum payments are more often offered when buying a new car, by making a lump sum payment at the end of your loan term, a lump sum payment allows you to reduce your regular loan repayments. However, lump sum payments generally make the loan more expensive overall.
Lump-sum payments are popular with car loans because they tend to provide greater cash flow flexibility, especially for people who may have other expenses to pay during the term of the loan.
Lenders often charge a number of fees for providing financial products. Many loans require an application fee, service fee, or annual fee – all of which can vary by lender. For example, a loan with a monthly service charge of $10 over 3 years will cost you $360, so it’s important to consider all of the fees involved before choosing a used car loan product.
Advantages and disadvantages of used car loans
The buyer does not have to pay the entire balance in advance
It is very rare for a consumer to be able to purchase a vehicle and repay the full amount at the time of purchase. Subscribing to a used car loan allows consumers to have access to the vehicle they need and/or want while paying the balance in time.
Builds credit score
For those who use them responsibly and make their payments on time, a used car auto loan can be a good way to build a credit history to help establish a reputation as a trustworthy borrower. However, you shouldn’t take out a car loan just for this purpose. Most lenders prefer borrowers who have no existing debt.
Higher interest rates
When comparing interest rates with other loans like a new car loan or a mortgage, used car loan rates are generally much higher.
Vehicles are among the fastest depreciating assets money can buy. Typically, the vehicle loses value faster than the loan is paid off, which means your car could potentially be worth less than the loan amount owed. It should be noted, however, that new cars tend to depreciate faster than used cars.