Used Car Loan

With the average new car costing in excess of $30,000 today, a lot of prospective new car buyers also consider buying used cars.  In fact, there are several important economic factors that we think contribute to the growing attractiveness of buying a used car.

Buying a Used Car

While some may argue that the economy is sluggish right now, all you have to do is look on the roadways and you'll see a lot of new cars on the roadways of America today.  A lot of experts attribute this phenomenon to the growing popularity of car leasing.

Many men and women like the idea of getting a new car every two or three years.  And as a result of this behavior, they've created a booming car leasing industry.  Just visit any car dealership and you'll find a car marketplace with a surplus of very high quality, pre-owned, and gently used cars available to those willing to buy a used car.

And from this very active used car marketplace comes an equally active lending market offering attractive interest rates for buyers of used cars.

Used Car Loans versus New Car Loans

If you're looking for a used car loan, then you'll be happy to learn that this type of loan works pretty much the same way as a new car loan.  You would typically provide an up-front down payment on the vehicle - somewhere in the range of 10 to 20% of the negotiated price of the car.  The car loan would then be used to finance the remaining money owed on the deal.

A typical used car loan would have a term of anywhere from 12 to 72 months although the longer terms loans are less common with used cars than with new cars.  But before you approach a lender, you've got some work to do - including figuring out exactly which car, truck, minivan, or SUV suites your needs.

Guaranteed Car Loans

Once you've completed all of your car research, it's time to figure out what you can afford to pay for a car.  This means running through calculations and understanding how large a down payment you can afford.

It's always a good ideal to work with a lender before negotiating with car dealerships.  When you walk into a dealership with a guaranteed loan in your hand, it really increases your bargaining power.

A guaranteed loan tells the salesperson at the dealership that you are serious about buying a car and you have the financial resources available to you to be able to afford the car.  If the dealership can offer you a better interest rate, that only works in your favor.  At this point, you have not made any binding committed to any lending institution.

On Line Used Car Loans

If you're wondering where you can find a used car loan, the Internet is a great place to look.  Because of the lower overhead associated with conducting web-based transactions, those savings can be passed along to you in the form of lower interest rates and processing fees.

We've mentioned this before in other car-buying articles, but the Annual Percentage Rate, or APR, is the number you want to pay close attention to because it allows you to directly compare loans.  The APR includes not only the interest rate paid on the principal of the loan, but also takes into consideration the total cost of the loan including various processing or application fees.

Interest Rates on Used Car Loans

One thing to keep in mind is that oftentimes a used car loan may carry a higher APR than that of a new car loan.  This is primarily due to the reduced size of a typical used car loan.  If the institution's typical new car loan is $20,000 and a used car loan averages $10,000, then it has to spread its processing fees over a smaller loan amount.

The lender still has to conduct certain activities that have a fixed or flat cost - such as pulling credit reports and running credit checks on applicants.  So these lenders have to recover these fixed costs over a smaller loan amount, thereby increasing the APR for a relatively smaller used car loan.

Buyers Guides

Finally, if you are purchasing a used car from a dealership, they should be providing you with a Buyers Guide that contains Used Car Rules established by the Federal Trade Commission.  This guide is designed to raise awareness of the terms and conditions of buying a used car, for example:

• Is the car being sold "as is" or with a warranty?
• The pitfalls of oral promises or agreements.
• Responsibilities of the dealership, if any, during a warranty period.
• Your right to have the car inspected by an independent mechanic.

Go through the guide carefully and be wary of sales tactics that force you into quick decisions.  Negotiate only when you completely understand the terms and conditions of the agreement.

Car Loan Calculators

If you're looking for some quick information on car loans then we can help.  We've got a complete line of car loan calculators that range in sophistication from our simple car loan calculator which enables you to calculate monthly loan payments to our buy versus lease a car tools.  We've even got a calculator dedicated to figuring out how large a car loan you qualify for.

It's always a good idea to research a purchase as much as possible before making any commitments.  So take our online calculators out for a test drive before visiting a local bank or car dealership.

About the Author - Used Car Loan

Bill Sharlow is the Editor of Money-Zine.com.  Copyright © 2004 - 2009 Money-Zine.com