Are You Financing a Used Car? Keep These Things in Mind…

You may have heard that a new car’s value starts to depreciate as soon as it’s driven off the lot. Maybe that’s one reason why many shoppers prefer to buy used cars. Another reason could be that used cars are generally more affordable. If you plan to finance a used car purchase, here are some things you should consider before you buy.

Get Loan Preapproval and a Great Interest Rate

Getting preapproved is a good idea whether you’re financing a new or used car purchase. Since you’re shopping for a used vehicle, it’s important to remember interest rates for used cars can be double that of new cars. Translation: the money you save by avoiding new-car depreciation could be lost paying more in interest. To guard against this, compare rates from several lenders. After you find the best rate and loan terms, you can compare them to the dealer’s financing offer and pick the best one.

You may be wondering if getting auto loan quotes will hurt your credit rating. Generally speaking, these quotes may either be excluded from your credit report or be counted as just one inquiry if they’re all made within a 30-day period. For more information, read Experian’s explanation about how multiple loan inquiries may affect your credit score.

Avoid Long-Term Loans

Long-term loans may keep your payments low, but over time, you’ll pay more interest. Ideally, you should choose the shortest loan term you can afford, which will minimize interest payments. (Speaking about minimizing payments, be sure to read our 5 tips to pay off your car loan faster!)

Consider Certified Pre-Owned Vehicles

A certified pre-owned vehicle has been inspected and deemed to be in better operating condition than its peers. In theory, these vehicles may offer benefits of both new and used cars. To learn more, read this Consumer Reports article: The Truth About Certified Pre-owned Cars.

Buy From a Private Seller

If you fail to find a good deal from a vehicle dealer, you may consider buying from a private seller. Some people may be uncomfortable buying from a private seller, but you could save hundreds of dollars, if not thousands. And unless you plan on paying cash for your vehicle, you definitely want to get preapproved for a private party auto loan. For more information on private seller transactions, make sure to read NerdWallet’s tips on buying a used car from a private seller.

Consult a Mechanic and Research the Best Used Cars

Before you make an offer, insist on taking the vehicle to a trusted mechanic for a full inspection. The mechanic may find problems that could save you from making a costly mistake. In addition to a mechanic’s inspection, be sure to research the car you want to buy. Many websites, including Consumer Reports, Kelley Blue Book and more, have a list of the best used cars. If the car you want to buy is on those lists, that’s a good sign.

Extended Warranty: Yes or No?

If you’re buying from a dealer, once you’ve agreed on a price, the dealer may try to sell you an extended warranty. Should you buy it? That depends. Did you choose a used car known for reliability? Is the car still covered by the original factory warranty? Are you buying a certified pre-owned vehicle, and does it already have an extended warranty? These are all questions you should consider before buying an extended warranty.

Repair Costs

Every vehicle comes with repair costs eventually, but the older the car, the more likely you will experience these costs sooner. So again, you may save money up front buying an older vehicle, but you may spend a lot of that money on repairs, so make sure the math adds up in your favor.

Conclusion

A vehicle purchase is a big financial decision. We hope this information will help ensure that your big decision is also the right decision.