The easiest way to get information about used car loans is to phone various sources. Provide the pertinent information: cost, description of the car, and the down payment. After you have discussed the loan length and the amount to be borrowed, find out the APR and what the monthly payment on that amount will be. Find out if there are any restrictions on the amount of money the creditor will lend for the car you are interested in. Also, ask about additional fees such as credit checks and the finance charge, which is the total cost of the loan.
The following credit sources should be considered before selecting a used car loan:
- Credit Unions usually offer low loan rates, especially for used cars. In addition, credit unions sometimes offer free credit insurance to borrowers as well as low-cost credit disability insurance. Many consumers join to participate in their loan programs.
- Banks sometimes give a preferred rate to persons who have checking or savings accounts at the bank. In setting its loan rate a bank will inquire about a consumer’s creditworthiness by making a credit check. Another factor affecting the loan rate is the number of months the loan is in effect.
- Dealerships are not lending institutions. They borrow the money from their own banks or from local institutions. They may be the most expensive source of car financing but also the most convenient. Sometimes, under special arrangements, they offer loans to young buyers who have no credit history but are employed or to people with poor credit ratings. NOTE: Sometimes the dealership finance manager will offer to do your paperwork if you are getting a loan from another bank or credit union. For performing this service, the dealership receives payment by the lender who will pass along that cost to the borrower. Handling your own paper work may mean a trip to the lending institution, but it can result in a significant saving.
- Finance Companies and small loan companies make a point of providing loans to persons with bad credit or no credit history, but they charge the highest legal interest rates and have exacting requirements for loan security or collateral.
- Parents, relatives and friends can be a good source for young buyers. If you borrow money from a relative or friend, it is important to have a written contract that contains the standard information: the total cost, the amount borrowed, length of the loan, interest rate, and repayment arrangements. It should be signed, dated and witnessed. Keep accurate records because the Internal Revenue Service may consider large payments to a minor as a gift for tax purposes.
Some consumers knowingly choose to pay high interest rates for several reasons. Buyers with a checkered credit history may be embarrassed to go to a bank or credit union. They fear being turned down. However, the majority of borrowers who think their credit is poor could qualify for regular loans. Some consumers disregard their own self interest in money matters. They value convenience and the promised “no fuss” policies of dealerships. If you want to get a good deal, you must investigate all the sources of financing and select the deal that best meets your needs.