Used Car Loans

Used car loans are available for individuals or businesses that want to purchase a used vehicle but are reluctant to pay cash. When dealerships offer financing, they are actually writing Retail Sales Installment Contracts. The finance manager solicits quotes from their network of lenders. The finance manager then chooses the lowest rate and adds a mark-up so the dealership can profit. The total cost of the loan is heavily influenced by its interest rate and duration. The rate offered will depend on the borrower's credit score and financial situation. Choosing a longer loan will reduce the amount of monthly payments, but it will increase the total interest paid over the life of the loan. The terms of the loan may also contain origination fees and other "hidden" costs. Since the loan is collateralized by the vehicle, the lender will also require the borrower to protect the vehicle with comprehensive and collision insurance.

The finance company will pull the borrower's credit report and analyze his or her credit score. Late payments or defaults lower credit scores. The lender also considers the borrowers' ratio of debt to income. If the borrower is young or has never held a credit account, he or she might be denied a loan because of insufficient credit history. Obtaining a co-signer will help borrowers qualify for loans that would not be available otherwise. Credit insurance is available to pay off the loan in case the borrower dies or becomes disabled during the repayment period. According to bankrate.com, the average interest rate for used car loans in May 2010 was 7.72 percent. For new vehicles, the average rate was 6.99 percent. If you have good credit, you may qualify for a much lower rate. To learn more, read other articles about used car loans here at CarsDirect.

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