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Used car loans of May 2022 in the United States

Apply used car loans in the US from companies verified by our specialists. On 28.05.2022 you have access to {{category.number Of Products In Current City}} loans with a rate of 5% per 5-years. Increase your chances of getting money — fill out a multi-application with a free credit rating check.

Car loan online application in the United States

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Used car loans of May 2022

Used Car Loans

The used car market in the US is huge. Large dealerships, independent dealers, outlets, and buy here pay here (BHPH) sellers are widely represented by pre-owned vehicles. There are many park lots with used vehicles ready for resale that can be found in any US city, and the loan offers are in abundance.

Pre-owned cars will cost less than new ones, though this does not mean that the price is generally low and buyers always have money for instant purchases. Prices for pre-owned and new cars have increased by more than 30% during the last few years, according to Edmunds, and the tendency is likely to continue.

It drives people towards other means of funding cars, and there are quite a few of them available to US citizens these days.

This article focuses on car loans for used cars. You will find answers to everything needed to acquire a loan and pay it off successfully.

What is a used car loan?

Auto loans are a method of financing the purchase of previously owned vehicles put up for sale again.

In the US, the used car industry makes up a large total market share and is nearly half of the car market. Moreover, the market and sales rate are constantly growing, which indicates the high popularity of used vehicles. They are cheaper, and it becomes the main reason for buying them.

Though, not everything is so clear. Microchip costs raised, causing cars' prices to rise regardless of whether they are new or used. Therefore, many are wondering about getting a loan to buy a car.

What are the major types of used car loans?

There is an abundance of auto financing options for new and used cars. Auto loans are generally divided into these major types:

Personal loan

This auto loan depends on your credit score and is not tied to a car. The purchaser takes ownership immediately and pays pre-agreed amounts over the period specified in the contract. They vary in monthly payments, interest rates, and duration. The better the applicant's credit score, the more advantageous the terms.

Lenders divide applicants under this type into a few categories according to their credit scores: prime, non-prime, and subprime. The category will determine the loan funding amount and loan terms.

Prime loan

This type of loan in the US is highly beneficial in low APR. The lenders only offer prime loans to the most trustworthy applicants, which means a borrower's credit score should be above 620. The prime rate for most USA banks is set around 3,5%, though it varies with each lender.

Non-prime loan

These loans are typical to be borrowed in the short term, and they have higher APR than the prime ones, around 6% to 9%. Non-prime auto loans are available for applicants who suffered from recent bankruptcy or foreclosure credit damage. The credit score lenders seek from applicants for non-prime loans is within the gap from 660 to 601.

Subprime loan

A subprime car loan is a personal loan offered to people with a low credit score. Such auto loan carries higher interest rates and may carry prepayment penalties. However, subprime borrowers may not have other options to buy a car, so they agree to a higher estimated monthly payment and a higher APR.

The loan type depends entirely on your well-being and desires. It is crucial to be aware of the condition of the vehicle you wish to purchase and the dealer's reliability. In addition, interest rates on auto loans can be higher, as used vehicles carry a greater risk of breakage and deterioration. The loan's interest rate will depend on your credit score, so you need to check your credit report and even get preapproval from the bank before buying a car.

Guarantor loan

There is an option for applicants with low credit scores to get approved for an auto loan using a guarantor. This individual will be responsible for payments if you cannot cover them yourself.

It is a big responsibility for both parties, and it can be challenging to find a guarantor. However, this way, you can improve your credit score.

How to apply for a used car loan?

First of all, after you decide to take an auto loan, you need to look for lenders. Many companies provide auto loans to purchase a used vehicle, and the terms for each can vary significantly. Each auto lender will independently decide whether your credit score suits it and what loan term they will offer you to finance the car.

After selecting several suitable lenders where you prefer to take an auto loan, you should fill out a car loan application. It contains questions about debt, monthly expenses, income, and the loan amount. Many organizations accept applications online, making the process much easier and saving you a lot of legwork.

In the loan process, you will be required to provide complete and accurate information about yourself. The process includes not only financial documents but also personal data. Your social security number, credit card information, and bank account data are necessary for the lender to evaluate the odds that you are a reliable borrower and will be able to repay the auto loan. If you choose to withhold any information required for loan approval, you will most likely not receive a loan.

What are the main requirements for getting a used car loan?

The primary conditions for obtaining a loan for a pre-owned car in the United States are US citizenship and the age of 18. However, besides the requirements for an applicant, the car you want to purchase should not be above a certain age, and the mileage should correspond with the number set by the lender.

The requirements for mileage and vehicle age of a car can vary. While searching for a lender, you need to understand for which cars they are likely to issue a loan. The most common limits on the age of a used vehicle are for it to be under ten years from manufacture. As for the mileage, lenders expect less than 150,000 miles.

In addition, most lenders require collision and comprehensive insurance. You may also face a requirement as a limit on a car brand or title.

If you meet your chosen lender's criteria, you should pay attention to your credit score and income, as stated previously. They should match the sum you are applying for to signal the lender you are capable of repaying the loan.

Ways to get a used car loan

Whether you are getting an auto loan from your bank, other banks, credit unions, or online lenders, you must follow some basic rules.

Your credit score directly affects the chance of getting loan funding and the interest on the auto loan. If you have a poor credit score, you can still get a loan on good terms. Turn to lenders focused on working with borrowers with a low credit rating. It is a good option to get the loan if you are in a tricky situation, though the loan interest will be much higher. A choice is to get a loan with a guarantor. If you know a person with a good credit score and trust them, they can guarantee that you will pay off your loan.

Apply to all organizations of your choice to increase your chances of getting a loan. If one lender does not approve of your candidacy, you will have a backup. Don't take long filing applications, as credit reporting agencies take off your credit scores with each new inquiry.

Do not focus only on the auto loan rates and monthly car payments. They help assess the amount of money you will need to pay back but don't determine if the lender gives you a good option. Instead, focus on the car's value and compare the price you will pay using the loan.

For example, you buy a car for $30,000. You can deposit $8,000 as a down payment and want to borrow the rest amount. One of the lenders offers an auto loan for three years at 5%, and another lender provides an auto loan for five years at 7%. To compare where the offer will be more profitable for you, calculate the monthly loan payment and the total cost of the car. You can use our online calculator or count it by yourself. So, in the first case, the monthly payment will be $659, and the total cost is $23,737. You will overpay $1,737. In the second case, the monthly payment will be $436, but over these five years, you will overpay $4,138.

To choose the most efficient option, you need to prioritize. If it is essential not to overpay for the loan period, then the first option suits you better. If you are looking for a loan where the monthly payment is lower, the second option is more suitable.

How to repay a used car loan debt

While being an excellent alternative to instant purchase, an auto loan can still result in you paying significantly more for a car. The longer term you borrow, the more you will pay the lender. The major tip is to pay off the loan early to save money.

If your contract with the lender provides for the possibility of early payment and you won't face any penalties for it, go for reducing the principal. An early auto loan payoff can save you money and improve your credit score. The less debt you have, the more likely your credit score will go up. Credit reports remain for up to ten years.

If your existing loan has a high-interest rate or you have to pay high monthly fees, you can resort to a loan refinancing. Refinancing can give you better loan terms if your credit score has improved over the time you paid off the loan. Applying for a shorter period and a lower interest rate is more efficient.

Paying off a loan can be difficult and take longer if you pay for extra options. They are written into your loan agreement, and these can be warranties, waivers, and other services, and a lender may require some of them.

You can put tax refunds, pay raises, and bonuses towards your auto loan, and this will help pay off the loan faster and free up finances in the long run. Instead of raising your expenses, you can pay off your debt.

Pros and cons of a used car loan

An auto loan can be an excellent alternative to an instant purchase, as long as you prioritize the offers and weigh out the advantages. In addition, it is good to know about the disadvantages of getting auto loans to be ready for potentially unfavorable outcomes.

Pros of auto loans:

  • A lot of lenders are available. You can evaluate different places and find the one with the best terms.

  • Lower monthly payments. As used vehicles generally cost lower than the new ones, you will get a lower auto loan and, therefore, will be able to pay it off earlier and save money on the interest.

  • You can increase your credit score. You will build your credit score for future car loans by paying the loan on time or earlier and not missing the monthly payments.

  • You get the car immediately.

Cons of auto loans:

  • Lenders can impose limitations on applications and repayments for the loan. It is a regular practice for creditors to target the mileage and age of a car. In addition, a lender can impose restrictions on the title or brand.

  • The interest rate is likely to be higher for a pre-owned car. As the used vehicles are more prone to breakage and have higher risks, lenders tend to place the APR higher.

Additional pros and cons depend entirely on your situation. You must evaluate the risks you take and decide whether you can repay the loan on time.

Legal regulation of the used car loans market in the USA

The fundamental law that protects the rights of consumers is The Consumer Credit Protection Act (CCPA). It requires that the total cost of the loan or loan product be disclosed, including how interest and any fees are calculated. It also prohibits discrimination in processing a loan application and prevents misleading advertising practices.

The Equal Credit Opportunity Act (ECOA) protects applicants from discrimination. The lender cannot reject or accept an application based on gender, race, nationality, religion, or other criteria when considering an application. The ECOA allows applicants to take out car loans on equal terms.

The Truth-in-Lending Act (TILA) ensures the informed use of consumer credit by requiring the disclosure of terms and costs to standardize how borrowing costs are calculated and disclosed. Under this law, the lender is required to provide details of the Annual Percentage Rate, Finance charges, amount financed, total of payments, and other terms.

Legislation regarding APR differs from state to state. There is no interest rate cap set at the federal level. Therefore, you always need to watch that the interest rate is not too high. Unfair lenders resort to schemes to find loopholes in the laws, so read the loan agreement carefully.

The real cost of a used car loan

To take an efficient loan and calculate the finances for its repayment, you need to know how much you have to pay back.

You can use a calculator. Pay attention to the APR rate and sales tax. They contribute hugely to the loan and determine the excessive amount of money you will pay. In addition, the period for which you take the deposit will also add to the final amount.

If you have multiple auto loans and a low credit score, your interest rate may be higher than your auto loan. It would make sense to pay off the debt at a higher interest rate than to take cash and buy a car. Always try to put any extra money into paying off the highest-interest debt.

If you repay the loan early, you will pay less interest. So if you're expecting a big bonus, it is better to put it in debt monthly payments to pay it off faster. Even if you don't expect a sudden influx of money, paying a few extra dollars each month can reduce the total interest you pay.

Therefore, a loan for a new or used car is a good option if you cannot make an instant auto purchase. There are many offers from lenders for loan financing. The loan terms will depend mostly on your credit rate and history, but you will need to provide personal information to get approved by the lender.

The best way to evaluate the loan offers is to apply for preapproval. It doesn't guarantee you will be approved later, but you will be able to compare rates and calculate the amount of money you will need to pay back.

Plan in advance how to repay the debt and allocate the financial resources available. Thus, the pre-owned car loan you take can become an opportunity to improve your credit score.

FAQ

What is a decent interest rate on a used car?

When buying a used car, it is essential to consider that interest rates on used vehicles are usually higher than on new ones. Mostly, used car interest rates start at around 6% and can vary depending on the loan terms. An excellent interest rate for a used car can be between 4% and 8%.

What credit score do you need for a used car loan?

Lenders are looking for borrowers with higher credit scores, so you'll need a score of 661 or higher to qualify for a good loan. Subprime is given, as a rule, from 600 and below, and the interest in the subprime loan can be very high.