Shopping for and buying used cars is not something most people do every day, which means the task can be quite daunting – especially if it's your first time trying to find the best used cars and a great car loan to go with it. To make sure you get a fair deal on the used car of your choice, prepare yourself for the search, negotiation, and financing process by considering the following used car buying tips.
The first step to finding a used car should be considering your needs and desires and then doing your best to find them mirrored in a reliable used vehicle. Make a list of everything you require of your car: for example, good gas mileage, a high safety rating, enough seating, 4-wheel drive, a place for your dog to ride comfortably, or convenience features. Really taking stock of your requirements will ensure you find a vehicle that actually works for you and enhances your life, rather than choosing something that catches your eye because it's flashy and attractive. With a thorough list, you can even find a vehicle with both beauty and functionality.
Once you have a year, make, and model in mind, use a reputable pricing guide, such as the Kelley Blue Book or the NADA Guide to get an estimate of the car's high and low retail value in your area. You can use this to get an idea of whether you'll be able to afford the car of your choice, and you can also use these values to negotiate with the seller.
Before deciding on a specific vehicle, take a look at the vehicle identification number (VIN) on the vehicle's title and where it's stamped on the car. If any of these numbers don't match, this is an indication of a problem. You can also use the VIN to pull a history report from a company like AutoCheck or Carfax. Then pull a safety report from the National Highway Traffic Safety Administration to check on any vehicle safety recalls.
When purchasing a used car, the biggest risk is that you could be buying someone else's problems. Prior to purchasing a used car, you should always have a trusted mechanic of your own (not one located on the lot or representing the seller) do a full inspection of the vehicle. They'll quickly be able to spot signs of unreported accidents, damage, or other potentially expensive wear and tear.
To ensure your used car loan request is approved and you get the best possible deal when it comes to risk-based interest rate pricing, you'll need a relatively clean credit report. You can research and pull your credit history report for free from annualcreditreport.com. You can also pay a small fee to view your score. To ensure you can access great interest rates on a car loan, pay off any collection accounts that have not been settled and pay all your monthly payments on time for at least 12 months. No history of collections or late payments is best, but if you have them, be sure you can prove that you've learned to be financially responsible.
As a rule of thumb, all of your monthly loan payments, credit card payments, and housing costs should equal no more than 40% of your gross monthly income. Take a look at your current budget to determine how much you can afford to spend monthly on a vehicle. Be sure to consider an estimated loan payment in addition to insurance, maintenance, and fuel costs.
If you're uncertain about this step, your lender can use your loan application to help you calculate your debt-to-income ratio to determine how much car you can responsibly afford.
One of the best negotiating tools available to you at a used car dealership is pre-approval from a lender. Getting pre-approved for a car loan automatically places you in a safe buying space on a car lot because you'll avoid having to wrap your head around the dealership's sometimes tricky and misleading negotiating tactics that are tied into too-good-to-be-true interest rates and prices.
Plus, you'll know exactly how much you can spend, and you can use this information as a negotiating tool to get a sales-eager dealership representative to lower the price tags on the best used cars.
Unless you're in possession of a truly antique vehicle, the inherent value of your car will almost always decrease over time. If your vehicle's value depreciates more quickly than you pay down the principal balance on your loan, this can put you at risk of owing more on your car loan than your car is worth (being underwater). In order to protect yourself from this financial risk, it's advisable to pay at least 20% of your vehicle's sale price in cash, only financing the remaining amount. If you can afford to put more than 20% down, then do! This will save you money in interest over time and further protect you from being underwater in your car loan.
For the same reason you need a down payment, it's also advisable not to roll extra costs into the financed portion of your loan. You can get an estimate of loan closing costs, document costs, sales taxes, and registration fees from your lender, so you can come to your loan closing prepared to cover those items in cash.
A loan term is the number of months you have to repay your loan. The shorter the term, the higher the payments. Although shorter loan terms come with higher monthly loan payments, they also usually feature lower interest rates because they pose less risk to lenders. Once you've determined your budget, it's usually best to choose a car loan that you can pay off as quickly as possible because this will save you lots of money in interest.
These tips will help you find the best used cars and car loan for you. If you still encounter uncertainties throughout the process of shopping for a used car, determining your budget, or looking for a car loan, please do not hesitate to reach out to CCCU today. We can answer your questions, ensure you're prepared, and help you get the best car for your needs and budget.
For more details on how to find the best used cars and car loan for your needs and more tips to save you time and money on your car buying journey, review our "Car Loans 101: Car Buying Made Easy" complete guide!