Thanks to such a financial service as issuing loans, many US residents have the opportunity to buy things when they want, instead of saving money to buy them for several years or months. This service is especially in demand in the field of used auto sales: only in 2020, almost 40 million used cars were sold in the US.
So, how do used car loan rates work? What are the conditions for issuing it? Who can arrange it for you at a minimum rate? Of course, the answers to all these questions depend on the pre-owned vehicle you want, as well as your finances.
What you’re really asking is, “Who has the best loan rates on used cars for me?” You have a lot of options when it comes to lenders, such as MyAutoLoan, U.S. Bank, and Bank of America. The team at Rolls Auto Sales can help you find the right loan for your budget and lifestyle. Apply online, or visit us in Philadelphia to learn more!
What Are Car Loans and How Do They Work?
A car loan is money that you borrow from a bank (or another lender) to buy a new or used car (in our case, we are talking about the second option). It is based on a deposit, namely the car itself. This makes it possible to buy a car with or without a down payment.
The key characteristics of a used car loan rate are its price, expressed as a percentage per annum, and the repayment period. You should also take into account the fees for financial services and fines that you will have to pay in case of late payments. You can freely use a car bought with a car loan, but you cannot sell, rent, exchange or donate without the lender’s permission. Until the debt is repaid, the lender will keep the vehicle registration certificate.
Therefore, car loans have the following features:
- you have to pay the first fee from your own funds. In some cases, you may be offered a preferential car loan program where this payment is absent;
- if you bought a car on credit, you are not allowed to use the vehicle for commercial or industrial activities. To buy a car for these purposes, you need to apply for a commercial car loan;
- insurance for a car bought on credit is mandatory. This approach will protect the interests of the lender and the seller in the event of the disappearance or reduction in the cost of the vehicle caused by destruction, damage, or theft;
- loan money is issued to a legal entity that transfers ownership. In this case, the seller is responsible for the delivery of the vehicle to the new owner, as well as for the transfer of the owner's status to the buyer.
There are many ways to apply for a used car rates loan. For example, you can fill out a special form on the bank's portal or visit an office. In addition, requirements for borrowers are usually posted on the official websites of credit institutions. Another way is to fill out a questionnaire on the dealer's website, indicating the model you like.
As for buying a used car from an individual using a car loan directly, you will not be able to do this. In order to conclude a purchase and vehicle sale agreement, you will need a legal entity that will act as an intermediary. Usually, the bank takes over this responsibility.
What Is a Good Car Loan Rate?
What is the current interest rate for used cars loans? The current rate depends on your credit score and credit history. Below, you’ll find a quick overview of credit scores and their impact on auto loan rates:
- excellent credit: 850 – 740 = 3.2% interest rate;
- average credit: 739 – 680 = 4.5% interest rate;
- sub-par credit: 680 and below = 6.5 – 12.9% interest rate.
As you can see, a good car loan rate can be as low as 3.2% with excellent credit and up to 12.9% with bad credit. Naturally, the higher your credit score, the lower the average interest rates. If you’re planning to buy a car, it’s a good idea to work on boosting your credit score first, so you’ll have a better chance of getting low used car loan rates. One easy way to elevate your credit score is to make small purchases on your credit card and pay them off immediately.
What You Have to Know Before Applying for an Auto Loan?
Before applying for a used car rates loan, you should understand that you will have to:
- leave the acquired property as a pledge. Until you pay off the loan and receive your auto passport, you will not be able to sell or rent it;
- take out insurance. As we said above, you cannot get a car loan without insurance. Also, sometimes banks impose additional insurance services. Of course, you can refuse them, but then you will not receive a loan. For your request to be approved, complete these additional insurance services, and after receiving the money within two weeks, write a waiver to the appropriate insurance company. Then the money will be returned to you;
- make an initial payment. This is not a mandatory requirement when applying for a used car rates loan, but many banks can ask you to pay some part of the cost of the car under the contract;
- check if the car you have chosen meets the bank's criteria. Since the lender takes the car as collateral, you will be presented with the criteria that the car must meet.
There is also a list of aspects that you have to pay attention to before applying for a car loan.
Consider offers from several lenders
Bank representatives may strongly recommend taking a loan from their institution. However, you should consider as many options as possible in order to choose the lowest used car loan rates.
Find out all the terms of the offer
The information that you saw in the brochure of a particular lender is true, but not complete. Therefore,In order for the contract terms to be convenient for you, you must carefully study all aspects of this contract.
Check for hidden copayments and insurances
Reread the contract carefully. This will save you from additional expenses and problems with the lender if you suddenly violate the terms of the contract due to ignorance of your obligations.
Assess your expenses and income correctly
With a used car rates loan, you need to deduct from the budget not only the monthly payments, but also related expenses: auto insurance renewal, transport tax, fuel, and so on. As a result, your expenses can increase significantly.
Can I Get an Auto Loan with Bad Credit History?
Credit history is information about all your loans and payments. Credit history may be “bad” due to past loan delinquencies. Therefore, the bank may refuse to issue an auto loan.
If you are at least once overdue in the payment of the loan and interest, or for some reason did not fulfill the requirements for regular payments, this fact will be displayed in the request of the bank employee. In particular, when it comes to mortgage or car loan debt with confiscation of property.
The most trivial reason for not making a payment is forgetfulness. You can cancel it by repaying the loan in full. Also, you must agree with the bank on the repayment of interest and fines.
Improving your bad credit history does not mean removing negative information about you as a bank customer from the database. This information just needs to be updated. In general, it is not possible to delete credit history information from the database. If an error is found, you should contact the bank, which must confirm that you have paid the loan rate correctly, and the information in the database is incorrect. In other cases, credit history can be restored only by signing loan agreements and fulfilling the contract obligations without delays.
You can legally correct your bad credit history only by purchasing credit products with subsequent stable debt repayment. You can order several small loans in succession from financial organizations, that is, conclude a new agreement immediately after the old one is closed. To save money, you need to take small loans from banks for a short time. When you successfully repay the issued loans, your credit history will be updated, and you will acquire the status of a reliable client.
Remember that banks usually offer high auto loan rates used cars to borrowers with a bad credit history. The reason is the increased financial risks for creditors. Therefore, you must be prepared to:
- get a lower amount than in your application;
- get a loan with a large monthly payment.
In this case, the bank will issue the purchased vehicle as a pledge.
As for the ways to get a car loan, if you have a bad credit history, there are several of them:
accept the inflated interest rate that the lender offers you;
- provide mortgaged property equivalent to the car you are going to buy;
- argue for past troubles with credit history;
- confirm the current solvency with a stable income or salary;
- find a lender who is ready to cooperate with unscrupulous borrowers.
Note that it is impossible to correct your credit history if you are a “hard-core” defaulter and most banks have blacklisted you. In this case, you will in no way be able to draw up a used car rates loan agreement in order to repay it and correct your credit history successfully.
How Do I Get a Car Loan?
The idea of getting a used car rates loan can be somewhat intimidating, especially to first-time buyers. However, you can easily start the process online by researching different lenders’ and credit unions’ products and services. To apply for an auto loan, you need the following documents and information:
- driver’s license or ID;
- social security number;
- steady employment & employment verification;
- proof of income;
- proof of assets.
Have questions about anything listed above? Our finance team can help! In addition to guiding you through the process of applying for an auto loan, we can answer related questions like, “Can I trade in a financed car”, or “What is in-house financing?”.
Apply for Auto Financing at Rolls Auto Sales in Philadelphia, PA
As you can see, a used car rates loan is a good financial instrument if you use it correctly. If you sign an agreement with a lender, read it carefully and clarify all the conditions. This will protect you from the risks associated with extra costs and hidden provisions (which are usually written in small letters).
Ready to get the financing process rolling? Contact us at Rolls Auto Sales to learn more about our financial services, or to schedule a test drive near Reading and Allentown. We’ll help you get behind the wheel of the vehicle you want for a monthly payment that won’t disrupt your budget!
Frequently Asked Questions about Used Car Loans Rates
And now we present to your attention the answers to the most popular questions related to used car loans in Philadelphia, PA.
What is a good interest rate on a used car loan?
You must adequately assess the interests of the lender and your ability to pay. Especially when it comes to buying a used car. If we talk about low used car loan rates, they are as follows:
- excellent credit: >=750 = 5.1% interest rate;
- good credit: 700-749 = 4.91% interest rate;
- average credit: 600-699 = 5.89% interest rate;
- poor credit: 451-599 = 11.24% interest rate;
- no credit: <=450.
As you can see from the indicated lending rates, if your credit rating is above 600, you can get quite favorable lending conditions, because 5-6% per annum is not such a big amount of money (although, of course, it all depends on the cost of your purchase). If your credit rating is not so high, follow the steps we wrote about above to increase it. In this case, a delay of several months spent on improving your credit history will help you get the most favorable used car rates loan rates.
What is a good interest rate for a 72 month car loan?
Usually, banks and other institutions issuing car loans offer contracts for a period of 2 to 6 years (72 months), although in recent years creditors have begun to conclude contracts with a longer duration (up to 7-8 years). But the longer the period of your contract, the more you will pay directly to the lender in addition to the initial cost of the car. For movable property, this is not the most advantageous position. Below you can find out the average interest rate on used car loans depending on the term of the contract:
- 3 years - 4.21%;
- 4 years - 4.31%;
- 5 years - 4.37%;
- 6 years - 4.45%.
Obviously, over time, the external market value of a used car will gradually decrease, so you risk overpaying to the lender more than half of the price of your purchase.
Why is a 72 month car loan bad?
Car loans for more than 5 years usually do not pay off: cars tend to lose value every year, especially with their active use. Therefore, contracts with terms of 60 months or more are usually chosen by clients seeking to reduce the lending rate as much as possible.
However, if you calculate the costs of repaying the used car rates loan and compare them with the value of your purchase, you will realize that such conditions are not at all beneficial for you. In particular, when buying a car that is 3 years old on credit for 72 months, the last payment will be addressed to a car that is already 10 years old. Obviously, this approach is not the best idea, and it is much better to save money for more beneficial loan rates.
Is it better to get a loan from a bank or dealership?
Start by looking for a bank with the most favorable terms for you. If you have a good credit history, you can easily get a used car rates loan for a car with low rates. As for contacting a dealer, this case will suit customers with bad credit history, as well as those who have chosen to buy a car that does not meet the bank’s requirements where you plan to take out a loan.