Can You Get a Used Car Loan?
Summary
Yes, you can get a loan for a used car. Learn how used car loans work, where to get one and how to apply to make the best decision for your budget.
In this article:
Yes, it’s possible to get a loan for a used car just as you can for a new car. Many dealers and manufacturers offer certified pre-owned programs — the gold standard for buying used — which can provide vehicles that are just as reliable as newer models, depending on where you buy and how well the car has been maintained. If paying for a used vehicle in cash isn’t an option right now, you might want to consider a used car loan.
A used car loan is an installment loan for purchasing a previously owned vehicle. You can borrow the funds in a lump sum from a lender, and, in return, you agree to repay the money over time, plus interest.1
Let’s review more about how used car loans work, where to get one and how to apply to help you make the best decision for your budget.
Is getting a loan for a used car more difficult?
Sometimes, it can be a bit harder to get a loan for a used car than for a new one because the lender may find it challenging to assess the vehicle’s value.2 A car’s value can decrease over time due to wear and tear.
A used car may have more mileage and, depending on its past service history and driver habits, could be prone to mechanical issues sooner than a new car would be. Lenders might charge higher interest rates on a used car loan, because it may be harder to determine the value of the car compared to a new one.3 When a used car loan is a secured loan, it means the car is collateral (something thing of value that you possess) which the lender can legally seize to attempt to recoup the loan amount that’s still owed if the borrower defaults.
Where can you get a used car loan?
Used car loans are available from different types of lenders. Each lender has different loan terms, including the amount of time you must repay the loan and the amount of interest you will pay. If you’re purchasing from a private seller or even a dealership, a personal loan could be an option to help cover the cost.
With a secured loan, the vehicle serves as collateral, which may help you qualify for better terms. However, if you qualify for an unsecured personal loan, you can use the funds to buy the car outright — whether from a dealer or a private seller — without having to secure the loan with the vehicle.
Some lending options include:
Banks
Many banks provide loans for used cars, but they may have stricter credit requirements compared to other lenders, like online lenders or credit unions.4 This means banks may require a higher credit score or stronger financial history to qualify you for a loan.
A credit requirement refers to the minimum credit score or financial criteria a lender may have to approve a loan or line of credit. If you have less-than-perfect credit, you may want to explore options from non-bank licensed lenders, like OneMain Financial, that consider more than just your credit score when reviewing your application.
Credit unions
Credit unions may offer lower interest rates and better loan terms than banks. However, you might need to be a member to apply for a loan. Becoming a member usually involves meeting specific requirements, like living in a certain area or working for a specific company. The effort to join a credit union could be worth it if it helps you get a lower interest rate on your loan.
Dealerships
Car dealerships often provide financing, meaning they arrange loans for customers who buy cars. This can be convenient, because everything is done in one place. OneMain works with many dealers to offer auto purchase loans and works with a wide range of customers, from people with stronger credit histories to more limited credit histories.
Some dealerships also have “buy here, pay here” financing instead of using a bank, which means they lend the money themselves. These loans often come with higher interest rates and extra fees, making them more expensive.5
Other lenders
Online lenders tend to offer quick application processes and fast funding if approved. You can apply for a loan to buy a used car with a lender online or by visiting a physical branch.
While online lenders may have different ways of evaluating applicants, OneMain works with a wide range of credit scores and looks at your overall financial picture to help you find a loan that fits your needs.
How to apply for a used car loan
Applying for a used car loan involves several steps, and being prepared may increase your chances of getting approved.
- Check your credit score: Lenders like banks, credit unions and online lenders use your credit score to help decide if they will lend you money and at what interest rate. A more favorable credit score may lead to better loan terms. So, it’s important to check your score to make sure your credit is in good standing before you apply. You can also take early steps to improve your credit score if it’s not quite where you want it.
- Consider your budget: Think about how much you can afford to spend on a car. You’ll want to consider including more than just the loan payment. How much will your car insurance, registration, maintenance and related expenses cost in addition to your other monthly bills?
- Research lenders: Compare different lenders to see who offers the best loan terms, interest rates and fees. Don’t settle on the first offer you come across. Ask friends and family about lenders they’ve used, and check reviews online to get an idea of what makes the most sense for you.
- Prequalify for a loan: Don’t forget to check for prequalified offers instead of filling out and submitting applications for multiple loans. Applying will affect your credit score, but checking to see if you prequalify for an auto loan will not. Prequalification gives you a preview of what loan amount may be available to you, pending more information that comes with a full application. This could help you compare loans before committing to completing an application.
- Apply for the loan: Once you’ve decided on your budget and found the right lender for your needs, it’s time to apply. Gather the necessary documents, such as pay stubs (proof of income) and identification. You may also need to provide information about the vehicle you’re purchasing, such as the VIN, make, model and dealer details. Submit your application in person or online, depending on your lender, and wait for the decision.
Should you get a loan to buy a used car?
Buying a used car can be more affordable than purchasing a new car, and a loan can help make the upfront cost more manageable, but there may be additional costs to consider. Since you will pay interest over time, the total amount you spend on the car will be higher than the purchase price. You may also need to budget for repairs or new parts depending on the condition of the car. Before taking out a loan, consider your financial situation, interest rates and whether you can buy the car with cash instead.
There is not a single right answer for everyone. Take your time to compare options and choose what works best for you.
Sources
1 https://www.experian.com/blogs/ask-experian/how-to-get-a-used-car-loan/
2,3 https://equifax.com/personal/education/personal-finance/articles/-/learn/comparing-new-vs used-car-loans
4 https://www.bankrate.com/loans/personal-loans/online-lenders-vs-banks/
5 https://www.bankrate.com/loans/auto-loans/dealer-financing/
This article is for general education and informational purposes, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any purpose and is not intended to be and does not constitute financial, legal, tax, or any other advice. Parties (other than sponsored partners of OneMain Financial (OMF)) referenced in the article are not sponsors of, do not endorse, and are not otherwise affiliated with OMF.
