What You Should Know About Used Car Finance?

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  2. What You Should Know About Used Car Finance?
Purchasing a used car is generally a good idea. You save money on the purchase price, you still have a warranty in some cases, and you don't have to worry about the huge depreciation that occurs with a new car the moment you drive off the lot. However, buying a used car is still a different experience when compared to buying a new car. What are some things that you should know about used car finance?

You Should Consider a Shorter Loan Term

A shorter loan term gives you a lot of flexibility when you are paying for a used car. Some of the specific benefits of paying for a used car in less than 60 months include:

  • You may pay more than the car is worth due to accrued interest
  • The warranty could run out before you are done paying for the car
  • Build equity faster toward the purchase of your next car

Used car finance rules suggest that you go for a 48 month loan when you purchase a used car. That will ensure that you are done paying for the car in a reasonable amount of time.

The Loan Amount You are Approved for May Be Less

Banks don't like to fund used cars for a long time because they may break down quicker than a brand new car. A borrower who has a car that won't run is more likely to spend money to get the car fix than they are to make the used car loan payment. This means that you may only get approved for $10,000 worth of financing when you could get $15,000 for a new car.

You May Be Required To Get Extra Insurance

Used Car Finance Collision and comprehensive insurance may not seem necessary to you. However, you are going to be asked to get the extra coverage if you have a loan on your car. This could come back to haunt you if you drive an older car that isn't worth repairing anyway. Make sure that you are only getting a loan on a used car that will last you for the entire term of the loan. You may be paying too much otherwise, or you are paying for a car that you cannot afford right now.

Getting a used car loan is not the same thing as getting a new car loan. You will most likely get approved for less money, you will want to pay the loan off in a shorter period of time and you may need to get extra insurance. That may push your out-of-pocket expenses to a price that you are not comfortable with.

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Do you meet the basic qualifications?

  • At least 1 year with current employer
  • A minimum income of $1,500 per month
  • No repossesions within the last year
  • Any bankruptcies must be discharged
  • Money down may be required, but not in all cases
  • Must be a current resident of the U.S. or Canada