Purchasing a pre-owned car gives you a number of advantages. The more affordable sticker price is one such benefit. But, even if you opt for a used car, you may need an auto loan to finance your purchase. Banks, auto dealerships, online banks, and credit unions offer used car loans, so there’s no dearth of options. However, it’s important to make the right choice so you don’t end up overpaying for your loan. Here, we tell you what you need to look for when comparing used car loan options.
Down Payment
The more you pay as a down payment, the lower your loan amount will be, which means you won’t have to pay as much interest on your loan. So, it’s a good idea to save as much as you can for the down payment. If you don’t have enough savings but need a car immediately, consider putting off your purchase until you have enough saved up. Never opt for zero down payment loans, no matter how tempting they may seem.
APR
The annual percentage rate, also called APR, includes the interest rate and any applicable fees that the lender may charge for the loan. Assuming that the down payment you make and the loan terms are the same, comparing the APRs of different loans can help you identify the relative cost.
Loan Term
The loan term refers to how many years it will take you to pay off your loan completely. For new cars, the loan term usually starts at about 36 months and goes up to even 84 months. Because used car loan amounts are usually not too high, the terms for used car loans are shorter. A longer-term loan means lower monthly payments, but you’ll need to pay more interest over the term. So, pick the shortest loan term you can afford.
Monthly Payment
This is a certain sum of money you agree to repay the lender on a monthly basis until your entire loan amount is paid off. Typically, the payment remains fixed and includes the principal amount and the interest charged by the lender.
When getting a car loan, ensure you don’t rush the process. Make sure to take your time and check these factors and weigh your options before you make a decision.