A used car on a lot.
Auto Loans

Financing A Used Car

When it comes time to buy a car, you have a decision to make. Should you buy a new car or a “new to you” car. Going used definitely has some advantages but it also has some disadvantages. Take a look at some reasons why you might or might not want to shop the used market for your next car, truck or SUV.

Deciding To Go New Or Used

You might think that going used will be the best route to go with a car purchase, but this might not be the case. Sure, there are reasons to go the pre-owned route, but new vehicles have some benefits as well. Take a look at some pros and cons of both.

Why Finance A Used Car

Used cars have a lot going for them.

For starters, the price is obviously going to be lower which will allow you to get more vehicle for your money. If you only have $15,000 to spend, for example, you are not going to get much in the way of a new car. On the used market, you have a lot of options however, depending on the mileage that you are willing to accept.

Another benefit of a used car is that depreciation will be lower. A vehicle depreciates the most when you drive it off of the new car sales lot for the first time. First year depreciation averages 20 percent. A used car will have already suffered the first year of depreciation. If you are going with a zero down loan or even one with a low down payment, you are less likely to be upside down on a used car for a long period.

Finally, look at insurance costs. Full coverage will likely be less than that of a used car because your car value will be less.

Why Finance A New Car

Now, let’s look at the benefits of going with a new vehicle.

One of the biggest reasons to go new when financing is that the interest will almost always be lower. Used cars are more of a risk for a lender because they may not last as long. New cars come with a lengthy manufacturers warranty and a car that is running is one that people are more likely to keep paying on.

Another benefit is that warranty itself. It is hard to beat a manufacturers warranty and if you go used, you would have to pay thousands of dollars for an extended warranty. If you need 3000 dollars for a warranty and add that to a finance deal, it would add about 60 dollars a month to the cost of a five year loan.

Finally, you need to look at the extra costs associated with the purchase, particularly maintenance and fuel. A new vehicle is very unlikely to need maintenance for years and if it does, it should be covered under warranty. Fuel will likely also be less with a

Dealer Financing Tips

Once you decide to go used or to go new, the work is not over. You will likely be buying from a dealer and that means that you have to stay on your toes. Here are some tips that can help you get the best auto loan.

Get Your Own Financing

The best option will be to get your own financing before you step foot on a dealer lot. This will most likely earn you the best rate because dealers earn money on the back end when you dealer finance.

You see, if a dealer offers you an 8 percent financing offer, the bank was more than likely offering 6 percent. The extra interest money goes in the dealers pockets.

Watch Out For Dealer Adds

Many dealers like to sneak pricey add ons into the total cost. This is usually something like an overpriced window tinting that should cost $100 but that they charge $500 for. It is not uncommon for dealer add ons to take a car from 15000 dollars and push it up to 18000 dollars.

If a dealer tries to put add ons onto the bottom line, ask for them to be removed or at least greatly reduced to a fair price. If they refuse, don’t be afraid to walk. There are a lot of dealers who do not use this practice.

Stay With A Reasonable Term

Terms longer than 4 or 5 years are just bad news. 6 year and longer terms pretty much guarantee that you will be upside down for at least half of the loan. It will also increase your interest rate and total interest costs significantly. On a 20000 dollar loan, going from a 5 year term to a 6 year term can cost you an extra 2000 dollars in interest.

The problem is that dealers love 6 and 7 year loans. It allows them to get you to spend more by letting you focus on the monthly payment instead of the total cost of the loan. Stick to your guns on your loan term and do not let the dealer fool you.

Do Your Research

The month leading up to your vehicle purchase, start researching dealer websites and car classifieds like Cars.com. This will give you a good idea as to how much you should expect to spend on the car or truck that you are looking for.

If you have a trade in, make sure that you research the trade in value on websites like Carfax.com and NADA.org. Print out your vehicle value and take it to the dealer with you. A dealer will not offer you fair price for your trade initially, so you need this information.

The more knowledge that you have, the better you can fight the dealer when they start playing games for you.

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