Purchasing a used car is a cost-effective way to get a new vehicle for your transportation needs. While used cars are often cheaper than new models, most people still need to take out auto financing to help pay for the cost of the vehicle.
When obtaining used car loan financing, it’s critical to consider your credit score, the loan’s interest rate and terms, and what size of down payment you can make on the vehicle purchase. Understanding these elements can help you make a wise financial decision to get the car you need and keep your budget on track.
Learn what to consider before taking a used car loan and how applying for a loan with T&I Credit Union can get you beneficial terms for your purchase.
What is Your Credit Score?
Your credit score and credit history significantly affect your ability to get approved for used car financing. Most lenders also use these factors to determine your car loan’s rate, terms, and conditions.
For example, many lenders consider scores between 300 and 629 bad, 630 to 689 fair, 690 to 719 good, and 720 to 850 excellent. People with good and excellent credit often see the lowest rates and better term offers, helping them save money when buying a used car. You may struggle to find financing or get a lower rate if you have poor or fair credit.
When applying for a loan, you’ll want to consider your current credit score and whether you need to improve it before taking out a loan. To review your credit history, you can obtain one free report per week from one of the three main credit reporting agencies Equifax, Experian, or TransUnion. You may work with your lender or purchase a credit score report online to obtain your credit score.
What Interest Rates Will You Have on Your Loan?
The interest rate you pay on your used car loan affects your monthly payment amount and the car’s total cost. Financial institutions charge an annual percentage rate (APR) on loans to cover the cost of lending you the money. Lower interest rates are preferable on your car loan because they translate to less money spent on the purchase overall.
For example, if you finance a car with a $25,000, 60-month car loan at 4.5% APR (minus other costs such as sales tax, title, insurance, or a downpayment), your monthly payments will be around $466.08, and you’ll pay $2,964.53 in interest over the life of the loan. If your APR is 9% on the same loan amount and terms, you will pay $518.96 monthly and $6,137.53 in interest over 5 years.
These numbers illustrate the impact your interest rate can have on the total cost of the vehicle. When applying for a used car loan, choose a lender that offers competitive rates. T&I Credit Union offers used car loans for vehicles from 2014 or older for rates as low as 4.75% based on creditworthiness.
What Terms are Available for the Loan?
A loan term is a predetermined amount of time during which you repay your auto loan. Loan terms can range from less than a year to several years, with 36, 60, and 72 months being the most common.
Shorter loan terms mean higher payment amounts because you repay the loan more quickly. Longer loan terms can offer smaller monthly payments but usually mean you pay more in interest over the life of the loan.
For example, a $25,000, 36-month loan at 9% requires a $794.99 monthly payment, whereas the same loan at 72 months allows you to pay $450.64. However, you’d only pay $3,619.76 in interest with the first option and $7,445.97 with the longer term.
T&I Credit Union offers used car loans at 60-month terms. Our used car loans allow you to pay off your vehicle in 5 years with reasonable monthly payments. We don’t implement a prepayment penalty, so you can make higher payments on your loan to pay it off early without extra fees.
How Much Can You Put Down on a Used Car?
When taking out a loan for a used car, determine how much money you have available for your down payment. A down payment on a car is how much you pay upfront for the car before taking out a loan. A large down payment reduces the amount you borrow, lowering the total cost of the vehicle.
Although you may be able to get financing without a downpayment, try to put down at least 10% of the price of the car out of pocket. Offering a downpayment demonstrates to the lender that you have some funds available for the vehicle purchase and can help you get a low interest rate.
What’s Your Plan for Loan Repayment?
Having a repayment plan before taking a used car loan can help you stay on track and build good credit. You can use financial resources services to help you budget your loan repayments or credit counseling to improve your credit score before applying.
T&I Credit Union offers excellent financial services for customers that help them budget for financial issues like car loan repayments. With T&I Credit Union’s Money Manager finance tracker, you can keep track of your loans, maintain a comprehensive repayment calendar, enroll in automatic payments, and create clear financial goals to avoid missing a payment.
Used Auto Loans with T&I Credit Union
Taking out a used auto loan is a significant financial decision. Working with a trustworthy lender that offers excellent loan terms and rates is essential to getting the car you need without putting you in unreasonable debt.
At T&I Credit Union, we understand how quality financial services can improve people’s lives. We offer many financial products and services for your car-buying needs, such as auto loan calculators, credit analysis, and an easy online loan application process for pre-approval.
In addition to auto loans for both used and new vehicles, we offer home and auto refinance options, credit cards, personal loans, and debt consolidation loans.
If you are looking for a high-quality used vehicle but need a loan, call T&I Credit Union at (248) 588-6688 to begin the approval process.