Apply for a Used Car Loan

Car buyers who are not experienced in financing a used car might be at a loss when it comes to figuring out just how to pursue a used car loan from a lender. There are numerous details to keep track of in any used car buying situation. When the buyer wants to finance part or all of the price of the car, the transaction gets even more complicated. Buyers can choose from dealers or other third-party lenders to get used car financing that makes sense for their budget. Use these helpful steps to apply for a used car loan that will be in your best interest.


Establishing the Basics

  1. Calculate how much you can afford to pay each month. The monthly payment on a car loan is less important than the overall cost of the loan (the principal plus interest) over its life. However, you'll still need to assess your budget and find out what you can pay each month. Even if you get a short-term loan with a great interest rate, you still need to be able to afford the monthly payments. Look at your monthly budget and determine a car payment amount that doesn't stretch your finances.
    • Focusing solely on the monthly payment during your loan search can leave you with a bad deal that involves a long loan term and a relatively high interest rate.[1]
    • When you're calculating this figure, be sure to also think about maintenance and insurance costs. Consult with an insurance agent to find out how much your car might cost to insure.[2]
    • In general, used cars tend to have higher maintenance costs than new cars. This is because the car already has miles on it and you don't necessarily know the wear and tear it has been through previously.
  2. Set a budget for your used car purchase. After you've established how much you can pay each month, think about how long you are willing to pay a car off for. Car loans are typically available in terms ranging from three to six years. Pick one of these terms and use an online car loan calculator to estimate how much you can spend on a car. Then, try other loan durations and write down how much you can spend with each different duration.[3]
  3. Figure out how much needs to be financed. When you want a used car loan, it's better to pay more of the total cost as a down payment and finance less of the deal. Consider how much you can pay up front and what leftover portion will need to be financed through a used car loan.
    • Consider making a larger down payment. A large down payment helps to not only control interest on the loan, but sometimes helps buyers to pay off their car loans quicker, allowing them to drop some of the pricier insurance coverage that lenders require while the vehicle is being financed.[4]
  4. Assess your ability to get a loan. Lenders base a portion of their financing calculations on the buyer's credit score. Make sure you Understand Your FICO Credit Score when you look at it. Make sure yours is in good condition, hopefully above the 680 mark, and allow the lender to do a basic credit check. If you have a very low credit score, such as below 650 or 600, it may be very difficult for you to qualify for a loan at all. Be sure to check your credit before applying for loans by visiting for your free annual credit report. There may be other factors that hinder your ability to get a loan, such as:
    • Most lenders (except for dealers) will refuse to lend to you for a car that is more than four or five years old.
    • The majority of lenders will not lend to you if you are buying from a private party (anyone except a car dealership).[5]

Applying for the Loan

  1. Do your research before shopping. It may be easier to just walk into a dealership, without shopping for a loan beforehand, and just submit to whatever the dealer wants to charge you. However, by doing this you are setting yourself up for a bad deal. What you should do instead is to get a loan pre-approved before entering the dealership. This will give you some bargaining power and also give you a standard of comparison when the dealer makes a financing offer.[6]
  2. Locate several different lenders. Start by locating banks and credit unions in your area. Don't just look at your bank, but go around town to other banks that also offer auto loans. Then, go in for a loan consultation.[7]
    • You can also shop for car loans online at sites like Capital One, Up2Drive, and Blue Harbor.[8]
  3. Comply with lender requirements for each application. Look carefully at what the lender wants for the loan application, and give them the details that will help you successfully apply for a used car financing deal.
    • Show income and assets. Any proof of income or large assets that could be used as collateral will help you to present a successful used car loan application, and can also lower the interest rates that you can demand from lenders.
    • It's best to complete all of these applications within a two-week window. Otherwise, applying for so many loans might negatively impact your credit score.[9]
  4. Analyze the interest or APR involved in the used car loan. The APR, or annual percentage rate, is the amount of interest that will be charged on your car loan each year. A higher interest rate represents a more expensive loan. However, the more important factor in choosing a loan is the overall cost, which combines both APR and loan duration. Therefore, you should compare your loan offers by looking for the loan with the lowest combination of APR and loan duration.
    • Small APR differences can have a large effect on how much you end up paying in interest over the life of the loan. For example, on a $15,000, 3-year loan, a 7 percent APR will be $500 more expensive overall than a 5 percent loan.[10]
    • You can standardize these comparisons by only asking for loans of a certain duration, like 4 years or 5 years. That way, the APRs will be directly comparable.
    • When choosing a loan, you should also look out for loans that charge large amounts of fees.[11]
  5. Choose a car. Once you are pre-approved for a loan, it's time to Shop for a Used Car or Vehicle. Your lender should have given you a limit on the value of the car, so stick to it. Remember, you can get a cheaper car than you are qualified for, but not a more expensive one. With pre-approval, you can shop for cars within your budget without renegotiating a deal with the dealer each time.
    • There may be terms in your loan pre-approval preventing you from buying cars over a certain age or with over a certain number of miles. Be sure to check this before buying.[12]
  6. Finalize the loan agreement. Compare the dealer's offer with the offer that you are pre-approved for. Is the overall cost cheaper? Even if the dealer offers you a lower APR, the duration of the loan may be more expensive. Take your time and make calculations to ensure that you are getting the best deal. When you've made your choice, the dealer's finance department will work to finalize the sale.
    • At this point, you will be asked to add a number of optional add-ons to your purchase. It's best to study these before going to the dealer so that you aren't pressured into them in the moment.[13]
    • The dealer may offer you a rebate or a low financing deal. However they will not offer you both. By taking a loan from a third-party lender (a lender other than the dealer), you can take the dealer's rebate and still get the low interest rate offered by the third-party lender.[14]

Getting a Loan with Bad Credit

  1. Apply even if you think your credit is too poor. Even if you think you have terrible credit or have been turned down by a few lenders, you still may be able to get a loan elsewhere. Different lenders look for different aspects of a borrower's credit and financial situation to assess whether or not to lend to them, so don't give up after a few lenders.[15]
    • You may be able to get a car loan online, even with bad credit, at websites like and Auto Credit Express. However, the rates on these loans will likely be very high.[16]
  2. Avoid subprime traps. Watch out for lenders that specialize in subprime loans or loans for lenders with bad credit. These are often expensive debt traps that will charge you exorbitant or flexible interest rates that can end up being much more expensive than you expect. Instead, always to regular lenders, like local banks and credit unions. You can also check to see if your employer or insurer offers car loans.
    • Make sure your loan terms are final, not conditional or contingent, in your loan contract. Non-final loan terms can change without warning, even after you leave the lot in your new car. This is known as a "yo-yo" scam and can leave you with a higher interest rate or down payment than you agreed to.
    • Similarly, watch out for add-ons or exorbitant fees in the loan contract. Unscrupulous lenders try to add these in to take advantage of borrowers.[17]
  3. Get a cosigner. A cosigner is a friend or family member that signs on to your car loan. This person is essentially guaranteeing your loan to help you qualify. This can help you even if you have very bad credit or Get a Loan with No Credit history. However, because your cosigner has signed on to your loan, they are equally liable for the balance in the event that you can't make your payments. Make sure you can make the payments before asking a cosigner to sign for you.
  4. Make a larger down payment. Lenders may be more willing to lend to you if you make a large down payment. This decreases your "loan to value" ratio, which is how much your loan is for versus how much the car is worth. In essence, this reassures banks that your vehicle will be worth more than your loan balance in the event that you default on your payments and your vehicle is repossessed. This, in turn, makes lending to you less risky.
    • Making a larger down payment may also reduce your interest rate and monthly payments.

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