back to articles | April 10, 2023 | Greg Thibodeau

Categories: Auto Loans & Financing

Everything You Need to Know About Financing a Used Car

Financing a used car doesn’t have to be a complicated process. Learn everything you need to know.


Buying a used car can be a smart financial investment. You aren’t paying top dollar for a brand-new car that will only lose value. Depending on the car you buy, you can still get plenty of driving years out of the vehicle. Before you start car shopping, you must learn everything about financing a used car.

Know What You Can Afford

Before making a large purchase, you need to know what you can afford. Otherwise, you risk missing payments and the lender repossessing the vehicle. To determine what you can afford, look at your monthly budget. Calculate your total income and expenses. This will tell you how much you have left over for your car expenses.

Next, calculate your estimated monthly vehicle expenses. This should include more than just the expenses associated with financing a used car. You also need to include insurance, gas, and maintenance costs. Doing this will ensure you do not agree to financing that is more expensive than what your budget can afford. Buying a used car means it is older and has a previous owner. This puts the car at greater risk of needing repairs that can increase the maintenance and repair costs of car ownership.

Check Your Credit Report

Before you seek financing, you need to know your current financial status. Lenders will look up your credit score and report when deciding whether or not to approve your application. Once you meet the lender’s requirements, it will use your score and report to determine the terms of its offer. The better your financial status and score, the better your loan term offers.

You need to know what they will find when they pull that report. First, you may find mistakes that lower your score. Correct these mistakes, improve your score, and get better loan offers. Second, you may find that your score could be better if you changed your current financial status. Perhaps you focus on paying off revolving debt. Or you could focus on consistently paying your current debts on time each month.

Shop Around

When it is time to apply for financing, it is best to shop around. Start by looking at a large list of lenders. Then, narrow down the list to lenders most likely to approve you. You can determine this by looking at the lender’s requirements. For example, some want borrowers with a credit score within a particular range.

Plan to apply with 3-4 lenders. This will give you a few different offers to compare. While applying for credit does ding your credit score, all of your applicants will count as one, minimizing the impact on your credit. This is why you should apply to them all around the same time.

To make things easier, you can fill out a single application through an online financing offer service. This streamlines the process by returning multiple offers at once. You can then compare rates on a single page.

Secure Pre Approval

Once you have a loan offer, you can go used car shopping. You have the advantage because you already have financing secured. This lets you find a car that fits within your financing budget, simplifying the used car buying process. Having pre-approval also lets you move faster once you find your dream car. You and the seller do not have to wait for the application process to determine if you can finance the used car. Without pre-approval, someone else could come along and buy the car out from under you.

Know the Out the Door Price

The price listed on the used car for sale may not be the final “out-the-door” price. If you’re buying a car from a local private seller, this isn’t as big of an issue. Registration fees and taxes are the only extras you must pay.

However, buying a used car from a dealer can get more complicated. The price advertised is only the base purchase of the vehicle. The final cost of the car can be much more once federally required dealer fees, manufacturer fees, and any other fees get added on. Some of these fees are required, and you cannot avoid them. Others are negotiable, so consider this when deciding on a particular used car.

Pay a Large Down Payment

The down payment is the initial money you give the seller when buying the car. The larger the down payment, the smaller the loan you need. The less money you borrow, the lower your monthly payment will be. Financial experts recommend saving enough to make a down payment of 20% of the purchase price. However, if this is more than you can afford, aim for at least 10%.

Needing to borrow a lower amount can also increase your chances of getting approved for a loan. So, consider this if your credit report, score, and income are not strong.

Be Wary of Long-Term Loans

The longer the loan term, the lower your monthly payment will be. This is because the lender spreads out your repayment over more months. However, the longer your repayment term, the more you will pay overall. Lenders may also increase the interest rate on their longer-term loans. These factors will put you at a greater risk of becoming upside down on your used car financing. This means you owe more on the loan than what the car is worth.

Check the Vehicle History

When you buy a new car, there is no vehicle history because the car doesn’t have a previous owner. It also has minimal miles on the odometer. However, when financing a used car, you need to consider the vehicle condition you plan to buy. You sign a loan agreement or contract with the lender. Because of this, you will still need to repair the loan even if the vehicle needs expensive repairs or has a hidden crash history.

Financing a Used Car

If you want to buy a used car, you have two options. You can either pay for the entire vehicle cost at the time of purchase or secure financing. For most people, they do not have several thousand dollars on hand to buy a used car with cash. This means they are left with the option of financing a used car. This guide will help you borrow responsibly.

Get offers from lenders for your used car purchase with our simple online tool.