Average Used Car Loan Rates to Expect

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Even with poor credit.

January 27, 2012

Becoming familiar with used car loan rates is an important first step to purchasing a secondhand vehicle. Auto financing is a big business, so it's best to check your options before you conclude any purchase.

If you are considering buying a used car, be aware that auto loan pricing varies widely. Differences in rates of 2 percentage points are not uncommon. The following is an example of rates which apply to late model used cars in the 1 to 3-year age bracket:

  • San Francisco, CA - 8.07 percent
  • Boston, MA - 8.57 percent
  • Chicago, IL 6.48 percent
  • Miami, FL - 7.70 percent

Although a very convenient source of funding, a dealership may not be the best choice, as the interest rates on dealer financed loans are invariably higher than those offered by a credit union or bank. Dealers will not only base the interest rate they offer on your credit rating, they are equally likely to add on extra percentage points and fees. These are revenue generating options for the dealer, and you will suffer in the process. Be aware that dealers may sell your loan to other lenders. In these cases, the lenders pay the dealer the markup as commission, which is why your dealer stacks the interest as much as possible. Research indicates that interest rate markups are frequently elevated for visible minorities.

Always attempt to get pre-approval for an auto loan from a lender prior to seeing the dealer. Use your best offer as leverage to reduce the dealer's interest rate. Should the dealership offer a choice between low-rate financing and a cash-back rebate from the manufacturer, it is normally a better deal to accept the rebate and take out a low-interest loan from your bank.

Take into consideration that vehicle expenses include not only repayments, but fuel, maintenance and insurance. Do a car payment calculation to gauge how much of your budget can be spent on automobile finances. In order to calculate what repayments you can afford, take gross monthly income (before tax) and multiply it by 15 percent. A payment calculator will make this task easier.

Home Equity Loan
Homeowners who qualify are eligible for a lower rate, by taking out a home equity loan. In this situation, you borrow against the paid-up amount of your home loan. The interest rate you will have to pay will be invariably lower than that of other consumer loans.

Ask Questions
Ensure that you're very clear on each point before signing any financing documents. It will be very difficult to back out after signing the papers.

Be prepared to negotiate for not only the lowest used car loan rate, but the extended warranty, trade-in value of your vehicle and the inclusion of any other features that you require.

Provide a Big Down Payment
Paying more money up front lessens the total amount of interest you will have to pay over the course of the loan. It also shows lenders you are serious about paying off your debt, and can make you eligible for lower interest rates.

Another option that could help in lowering rates on a used car loan is to get a co-signer that has a better credit rating. Loan companies base their credit decision upon the rating of the co-signer, even if they are not the ones to pay the car loan. This is one way of restoring your credit history while paying almost market loan rates.

Take Your Time
Regardless of the car loan terms to be chosen, do not hurry into any contract. Examine the information on used car loan rates and compare it with others. With many loan companies out there, be certain to get the best deal you can.

Arrive Prepared
You can move the financing process along smoothly by having the following items with you:

  • Driver's license
  • Credit card
  • A utilities bill
  • Contact details
  • A recent pay slip
  • A list of contactable references

Does Your Used Car Loan Rate Fall within the Average

Your used car loan rate is determined independently by the dealer based on your credit score, price of the vehicle, local economic picture, your current amount of debt and the perceived ability for you to repay the loan. Used car loan rates are hovering around 6.8 percent, varying slightly by the length of time on the loan term. 48-month loans average around 6.87 percent while 36-months average 6.96 percent. If your used car loan rate is anywhere from 6.5 percent to 7.15 percent, you are probably well within the average, and should not worry too much about refinancing with a different lender.

If your rate is not within the range of the national average, you can possibly save a significant amount of money by shopping around for a different lender and refinancing your loan to a lower rate. Many websites offer a comparison service where you can compare loans and pick the one that is right for you. You also can contact your current lender and ask for a reduction in your used car loan rate, as they may accommodate you.

New vs. Used Car Loan Interest Rates

Used car loan interest rates tend to vary considerably from new car loan rates. The reasons for this include the quality and resale values of the cars. In addition to the resale value, it's important to recognize that the supply and demand for the car can help to change that rate as well. For instance, if the car that you're looking to buy has very few vehicles on the market but a great demand, people may be more willing to spend a greater amount of money on interest rates in order to buy the vehicle, and you'll have to do the same in order to make the purchase.

Refinance for a Low Rate on Your Car Loan

Refinancing means that you pay off your existing vehicle loan with a new loan from a different lender. In this situation you will benefit from a lower APR. Lenders in general will not refinance their own loans, so you need to source an additional lender in order to get a low rate on your car loan.

Monthly Payments Are Lower
Refinancing in effect gives you the best used car loan interest rate, and your monthly vehicle payments become immediately lower. The great value to this situation is that your interest rate will drop, which allows you to pay off the automobile a lot sooner than would have been the case before. Because refinancing offers the opportunity for you to drop your interest rates, the money that is saved could be put to paying off additional credit card debt, which eases your overall monthly bills substantially.

Refinance Early
The interest from your car loan is effectively paid in the beginning, so if you are to benefit the most from refinancing, you need to look for another lender as soon as possible. The rule with refinancing is that the earlier you begin, the more you will save.

Priority for a Person with Bad Credit
Even persons with bad credit are eligible to apply for and in most cases, receive refinancing. It is an unfortunate truth that the original dealers or lenders will sometimes try to tell buyers of used automobiles that they have to accept a 21 to 25 percent APR.

Auto Refinancing Is a Powerful Tool
High interest rates can ultimately cripple a person financially, and whatever percentage the refinancing is lower than the original interest rate, the better off the buyer will be.

Who Should Consider Refinancing
If you were not successful in obtaining a 0 to 3 percent APR vehicle loan, you need to consider refinancing as soon as possible. Even if you can source a new lender who can only offer a 1 percent drop in your current interest rate, you should definitely take it.

Steps to Refinance a Used Car Loan:

  • Obtain your current vehicle loan payoff amount from your original lender.
  • Source a new lender who can offer at least an APR that is 1 percent lower than your current loan.
  • Inform your bank who the new lender will be, so that they can forward the title to them.
  • Inquire if you are required to pay your state a fee for transferring holders.
  • Expect your refinanced loan to be available within 72 hours.

Approaching a new lender to obtain refinancing for your existing used vehicle loan makes huge sense. Regardless of the average car loan rates at the time of your purchase, a refinanced loan can save you hundreds or even thousands of dollars over its life. What you are really looking for is a better interest rate than the one you currently have.


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