Understanding Financing Terms

3 Tips For Getting The Best Used Car Loan Possible

Compared to purchasing a brand-new car, which will inevitably begin depreciating the second you drive it off the lot, buying a used car can be a smarter financial decision. This does not hold in every situation, however. If you are choosing to finance your purchase by means of a used car loan, then there are several missteps you will want to avoid. Keep reading below for just a few of the most important tips on how to get the best possible loan for your next used car.

Shop Around

Not all lenders have exactly the same terms when it comes to used car loans. Some may prioritize a borrower's credit score, while others may put more emphasis on the age of the vehicle and how many miles it has on it. You'll also want to consider the type of lender that works best for you. Large banks, local credit unions, community banks, and private finance companies are all options for most buyers, though the financial services of some may be more visibly advertised than others. Don't be afraid to compare rates offered by different lenders instead of simply accepting the first one that sounds decent.

Do the Math

Even if a few percentage points of interest doesn't seem like a big deal now, it can have a significant impact on the amount you have to pay each month for the next several years. Monthly payments are also affected by the term of the loan itself — a loan that must be paid over the course of 36 months will have a higher monthly payment than one that is taken out for the same amount, but that must be repaid over 48 months. Keep this in mind as you think about the regular cash flow you need and how quickly you want to pay off the loan.

Improve Your Credit Score

One thing that you can do to improve the terms of a used car loan is to improve your credit as much as you can before applying with various lenders. A credit score is one of the most important factors that lenders use to assess the risk of a borrower, or at least the risk they likely represent. As such, it can determine loan rates to a large degree. If you are able to pay off one or more credit cards before applying for a used car loan, it is more than worthwhile to do so. 

For more information, contact a local company like the Credit Union of Denver.