Buying a used car sometime soon? It may be more difficult than you think to obtain financing for that vehicle. As is particularly the case with some high-end luxury cars such as BMW and Mercedes-Benz, banks don’t necessarily wish to provide loans. They’d just as soon you pay cash out of pocket so they don’t have to deal with the problems that can crop up when used cars are involved.
Let’s face facts for a moment: Used cars are a risky business. They’re usually not covered by any sort of warranty, they’ve often lost most of their value, and it’s often difficult to judge just how well the vehicle was taken care of by its previous owner. You could be buying into a cream puff of a car that’s not generally thought of as being particularly reliable, or you could buy one of the most reliable cars on the road today only to find out that the previous owner never changed the oil in 200,000 miles of driving.
For a moment, let’s talk about interest rates. Ever notice how comparatively low the interest rates are on new cars? There’s a reason for that, and it has a lot to do with risk. Simply put, banks take on less risk with new car loans than they do with used car loans. (In addition to the fact that only customers with A-1 perfect credit usually qualify for those super-low rates) At the same time, used car loans always seem to be so high, don’t they? Ok, all the reasons for that are a bit involved for this article, but really, you can look at it this way: The bank wants to make their money. If you default within two years of buying the car, and they have to repossess it, the new car with 24,000 miles will still hold much of its residual value, and can be auctioned off to recoup some of their losses. On the other hand, that car that you bought with 75,000 miles on it that’s now pushing 100,000 miles, has almost none of its residual value left, and the bank’s going to lose a bundle (unless they charge you a boatload of interest on the loan, right?)
That being said, even finding a used car loan can sometimes be tricky. It depends on how much leg work you’re willing to put in. Many people just take the used car loans that the dealership offers, without ever shopping around, since it seems so convenient. You probably know that that isn’t the best way to go, don’t you? That’s part of the trouble of buying a car. We always want the easiest way out, since the whole process of shopping for and buying a car is totally fraught with irritation.
It pays when you buy a used car, or you’re shopping for a used car loan, to shop around before you shop at the dealership. Check with your credit card issuer, your neighborhood bank, and even the bank that holds the note for your mortgage. Another great source of used vehicle loans is a credit union. Anyone can join one, since there are unions out there that cover professional affiliation, people who live within a certain county, city or state, and credit unions that cater to active and retired military personnel, as well. The point is, don’t just take the loan that the car salesman is trying to pass off to you. There are better options out there, if you just take the time to look. When it comes to used car loans, you really are doing yourself a favor to shop around for the best rates before you buy!