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Financing for a Used Car Loan


Many people choose to buy a used car because new cars are more expensive and tend to depreciate (or drop in value) much faster than used cars. Luckily, you can get an auto loan for both new and used vehicles.

Getting used car financing has many advantages. You have lower upfront costs so you can borrow less, which means your monthly payments are lower and you'll feel less financial stress. Read on to find out everything you need to know about financing for a used car loan!

How to Get Financing for a Used Car

Lenders generally consider used car loans to be a little riskier than new car loans. You'll need to prove that you're creditworthy and you'll likely get a slightly higher rate than if you were buying a new vehicle.

The best way to lower your cost of borrowing is to get your credit in good shape and choose a shorter loan term. That way, you get a lower rate and pay less total interest. An auto refinance is also a great way to save money if you can improve on an existing loan.

Create a Budget 

You want to have a great car buying experience and comfortably afford your loan. Start by looking at your monthly earnings and current expenses. 

  • Subtract your expenses from your monthly earnings to figure out how much money you have available for a used car loan payment. 
  • Use an auto loan calculator to see what purchase price you can afford for your ideal monthly car payment.
  • Make sure you consider the total borrowing cost, including interest and fees, when comparing auto loans—not simply the monthly payment.
  • If possible, save up for a down payment to reduce the amount you need to borrow. You may also get a lower rate!

Check Your Credit Score

It's a good idea to find out your credit score before you apply for your used auto financing no matter where you sit on the credit range. 

If you're on the edge of good credit (about 670 and up), you could improve your score to get a better rate. If your score is below 600, you may not qualify or you may get a higher rate. 

Here's how to improve your credit score so you can qualify and get better rates:

  • Reduce balances on higher-interest credit cards to save on interest
  • Pay off credit card debts and other loans to lower your credit utilization rate, also known as your debt-to-income (DTI) ratio 
  • Make bill payments on time
  • Avoid closing unused credit accounts to increase the amount of time you've held credit
  • Dispute inaccuracies in your credit history shown on your credit reports

Paying off your debt will not only boost your credit score but also free up space in your budget for your car payment!

Research Used Vehicles and Used Car Financing

You might be able to afford your dream car—or you may need to buy a vehicle that's more realistic for your budget. The important thing is to make sure you don't go upside down (or underwater) on your loan, where you owe more than your car is worth. 

  • Research the type of vehicle you want and find out the going price at different dealerships, plus be sure to look at similar models that may offer better value.
  • Find out how much your preferred vehicle tends to depreciate over time—the slower it loses value, the better.
  • Make sure you get a vehicle history report and inspection to find out if the car has been in an accident or needs repairs, or any other dealbreaker details. 
  • Compare used car offers—don't accept the first loan you see! Consider getting a car loan preapproval instead of getting financing at the dealership.
  • Look into private-party options like online marketplaces or even the car on your street with a sign in the window. You may get a great deal and still qualify for an auto loan!

Used Car Financing Options

Once you've worked out a budget, improved your credit, and researched your vehicle, it's time to consider auto loan lenders and other used car financing options. Keep in mind that you want to save money but also get great customer service!


Both large chains and community banks provide used car financing, but they may not be as flexible or affordable as other options. Large national banks tend to have the highest rates when it comes to used car loans, so you may want to shop around for a different option.

Credit Unions

Credit unions are not-for-profit organizations focused on providing affordable products and services to their local community. It’s easy to become a member and benefit from lower rates and more flexible terms than if you went with a large banking institution.

Credit unions may also offer helpful features like Skip-a-Pay, where you can pay a small fee in return for not making your loan payment in a month where you're short on cash. 

Finance Companies and Online Lenders

Finance companies don’t provide the same range of products and services as banks and credit unions. Instead, they focus on offering loans and often cater to specific groups of people, such as those with subpar credit. 

Used Car Loan Alternatives 

An auto loan isn't the only way to finance a used car. You could also explore options like a home equity loan or line of credit (HELOC). Home equity options offer competitive rates and let you borrow funds against your home. You can use the money for just about any purpose!

A personal loan from a financial institution or a peer-to-peer loan from family or friends are also options worth considering. 

If you don't want to borrow money, leasing a car may offer a lower monthly payment than an auto loan. But you don't end up owning an asset at the end of your term.

Comparing Used Car Loans

It’s best to get offers from multiple lenders so you can compare rates and terms and choose the best one. Talk with each lender and get pre-approved so you know exactly what loan amount and rate you qualify for. 

When comparing used car financing options from multiple institutions, make sure you consider the factors described below:

Interest Rate

Used auto loans typically have higher interest rates than new car loans, but you can still shop around for a more favorable rate. 

  • You get better rates with higher credit scores, shorter terms, and newer vehicles.
  • A fixed rate means your monthly payment will stay the same for easy budgeting.
  • The annual percentage rate (APR) may include the interest rate plus other fees.

Loan Term

Used car loan terms generally range between 12 and 72 months. 

  • You want to choose the right length for your needs and preferences. 
  • A longer loan term means your monthly payments will be lower, but more interest will accrue. 

Monthly Payments

Monthly payments are based on the loan term, the loan amount, and the interest rate. 

  • A shorter term and a higher rate each mean higher monthly payments. 
  • A lower rate and a longer loan term will reduce the burden of higher payments. 

Red Flags

If financing for a used car seems too good to be true, it probably is! Here's what to look out for to make sure your loan doesn't go sour:

  • Avoid prepayment penalties—it’s a healthy financial practice to pay off your loan as quickly as possible, so try to avoid used auto loans that penalize you for doing so.
  • If your credit score is low and you find only one lender who will offer you a loan, make sure you're not paying a very high APR or extra fees.
  • It may seem convenient to roll fees and extras into your APR, but then you'll pay interest on that amount as well as your principal. Try to pay extras upfront!
  • While a long loan term offers a low monthly payment, you'll end up paying significantly more interest. 
  • Make sure you complete your financing before you take possession of the vehicle to avoid yo-yo financing. This is when the dealership lets you take the car without full loan approval, then hits you with a worse offer than the estimate.

Financing for a Used Car Loan Application Process

After you’ve chosen the used auto loan that’s best for your budget, you can begin the simple loan process. 

Documents Needed for Used Car Financing 

  • A form of ID, such as a driver’s license
  • Proof of insurance
  • Proof of income, such as pay stubs and bank statements
  • Proof of residence
  • Evidence of any down payment

Steps to Get a Used Car Loan 

  • Hit the apply button, drop into a branch, or talk to your lender on the phone to prequalify.
  • Provide your personal and financial information and any details about the car you want to buy.
  • If approved, you find out your possible loan amount and rate based on your credit score and chosen term.
  • With your financing ready to go, you can find your vehicle.
  • Your lender will finalize your loan and transfer funds for the purchase.

Next Steps: See the Benefits of Credit Union Auto Loans

Just as vehicles come in all shapes and sizes, you also have a wide range of options when it comes to used car financing. Keep in mind that your local credit union can pass revenue back to members in the form of lower rates and fewer fees, so it might be a great choice. 

OUCU Financial offers low-interest auto loans that can help you buy the car you want and save money at the same time.


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