(Enlarge photo)
Searching for a loan ahead of time allows you to be more aggressive about shopping for a low-interest rate. Over the life of the loan this could add up to thousands of dollars. (Photo by Scott Jacobs)
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Buying Tips
How to Buy a Used Car
Step 2: Financing a Used Car
By Philip Reed, Senior Consumer Advice Editor
Email
The smart shopper will consider how to finance the car she wants to buy at the
beginning of the shopping process. This will avoid unpleasant surprises later
in the game. And, by tackling this question before getting around all that shiny
metal and chrome, you can make an unemotional decision that fits your lifestyle.
Three Key Figures
You need to estimate three figures. These numbers are not chiseled in stone. Instead,
they should guide you as you go shopping. The figures are as follows:
Monthly payment. If you are going to take out a loan, how much can you
afford to pay each month?
Down Payment. How much cash can you put down to reduce your monthly payments?
Purchase price of the car. The first two questions will produce the answer
to this final question. We've made this easy for you by creating the "Affordability
Calculator." to see how much your monthly payment should be.
Once you've determined how much you can spend for a down payment, a monthly payment
and the purchase price of the car, write these figures on an index card. Later,
in the heat of the moment, when you are negotiating for a used car, you might
need to check the card to bring yourself back to earth.
Financing Options
You have three ways to pay for your used car:
Cash. Need we say more? Money talks — and you-know-what walks.
Financing through a bank or credit union. We highly recommend this route.
Financing through the dealer. This can work for some people depending on
their credit scores. Also, by prearranging financing through an independent source,
the dealer may sometimes offer to beat the rate with a low-interest loan.
Financing through an independent source, such as a bank or credit union, offers
several advantages:
- Keeps negotiations simple in the dealership
- Allows you to shop competitive interest rates ahead of time
- Removes dependency on dealership financing
- Encourages you to stick to your budgeted amount
- Low interest loans can be arranged online through banks such as PeopleFirst.com
Make sure to leave yourself time to arrange a loan before heading for the
dealership. Some online lenders guarantee a fast response, so take the time to
fill out the forms and do get approval. You don't want to be dependant on
borrowing money from the dealer.
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