Buying a used vehicle with a loan can be a different experience from buying a new car. Since you have so many more options to choose from, lenders often add extra stipulations to help avoid a variety of situations that can be less than ideal for you and your lender. Fortunately, getting a loan for a used vehicle doesn't have to be hard, as long as you understand these differences.
What Stipulations Can You Expect and Why?
You can usually expect lenders to set limits on your vehicle's age, mileage, and cost. Surprisingly, these cost limitations are typically a floor rather than a ceiling. In other words, most large financial institutions won't provide used car loans for vehicles that are too cheap or if you only intend to finance a small portion of your purchase price.
The other limitations are easier to understand. Lenders have a stake in the vehicle you purchase, so they usually want to avoid loans for vehicles that are very old or have very high mileage. These vehicles are more likely to lose value quickly or suffer costly catastrophic failures. Since the car acts as collateral for the loan, lenders try to avoid vehicles that may be bad "investments."
Do All Lenders Have the Same Stipulations?
As a general rule, the larger the financial institution, the more likely you are to run into strict rules regarding the vehicles you can finance. These rules may make it challenging to purchase a car if you're on a tight budget and looking for a cheap daily driver. Luckily, you shouldn't expect these guidelines to be the same everywhere.
If you can't get the loan you need from a larger bank, other options include credit unions and dealership financing. Note that some dealerships use captive lenders, and others provide their own in-house finances. Dealerships with captive lenders often work with larger banks, but dealerships that provide independent financing may offer more flexibility.
How Can You Get the Best Deal on Your Loan?
Of course, the best options for saving on a used car loan are the same as with any other loan: do what you can to improve your credit score, put down a larger down payment, and avoid financing more than you can afford. If you've covered these steps, you can still do a few things to get a better interest rate and lower monthly payments.
Start by working with a lender that specializes in used car loans. Many credit unions offer used car-specific financing, and dealerships will have their own programs. It's also worthwhile to seek pre-approvals and compare rates from several lenders. If all else fails, looking at a vehicle that's a few years newer may allow you to receive a better interest rate.