Purchasing a used car can save you money upfront, but financing costs can quickly add up. These tips can help you save on loan costs and avoid financial pitfalls.
1. Check Your Credit Score
- Why it matters: Interest rates for used cars depend heavily on your credit score. A higher score can save you thousands over the life of the loan.
- How to improve:
- Pay bills on time.
- Keep credit card balances low.
- Use free tools like AnnualCreditReport.com, Credit Karma, or Experian to monitor your credit.
2. Get Preapproved
- Why it matters: Preapproval gives you a baseline interest rate and empowers you to negotiate better financing terms.
- Where to shop:
- Your bank or credit union.
- Online lenders like Carvana or Vroom.
- Tip: Multiple loan inquiries within 30 days are treated as one, so shop around without hurting your credit score.
3. Maximize Your Down Payment
- Why it matters: A larger down payment reduces the loan principal and interest.
- Example:
- A $3,000 down payment on a $29,000 car saves nearly $300 in interest over a 48-month loan at 6.8%.
- Tip: Compare interest savings to potential earnings if you kept the money in savings.
4. Avoid Long-Term Loans
- Why it matters: Longer loans (e.g., 60 months) may lower monthly payments but increase overall interest costs.
- Example:
- A 36-month loan at 5.44% interest costs $24,980 for a $23,000 car. A 60-month loan at 5.74% costs $1,500 more.
- Tip: Choose the shortest loan term you can afford to save money and avoid being “upside down” (owing more than the car’s value).
5. Check the Vehicle History
6. Avoid Dealer Add-Ons
- Examples: Extended warranties, paint protection, and extra fees.
- Why avoid:
- Certified pre-owned cars often include extended warranties.
- Dealer add-ons rarely provide value.
- Tip: Build a maintenance fund instead for unexpected repairs or use the savings toward your next car.
7. Factor in Repair and Maintenance Costs
- Why it matters: Used cars often require more upkeep.
Summing it up
Credit score: Secure a low interest rate by maintaining good credit.
Preapproval: Compare loan offers before visiting the dealer.
Down payment: The more upfront, the less you pay in interest.
Loan term: Shorter loans save money.
Research: Check vehicle history and avoid unnecessary add-ons.
By following these steps, you can secure a reliable used car while keeping financing costs in check.
Next: Read 2500+ consumer guides to shopping, electronics, appliances, home services, cars, money and more.
