More people are now shopping for the best used auto loan rate as an option to paying cash. With the prices of new cars continuing to rise, used car sales and prices are increasing.
Your parents purchased all of their used cars with cash. Back then, the average used car was priced in the hundreds of dollars. While a five-hundred-dollar car may have served as basic transportation in 1978, you will spend five times that to find something as reliable nearly three decades later. While most consumers do not wish to “invest” a lot of “liquid cash” into a depreciating used vehicle, cash is still popular for inexpensive used car transactions—but used car loans are more common as vehicle pricing increases.
A traditional used auto loan means the bank lends the consumer the money to purchase the vehicle. In exchange, the bank owns a percentage of the vehicle as “collateral” against the outstanding loan balance. In nearly all cases, a down payment is required, this is usually 20% of the sales price of the car. If a vehicle is less than a few years old, some banks will offer “100% Financing” - meaning no down payment. Beware of this arrangement since you will being paying more in the long run for your used car. With the traditional auto loan, you always own a percentage of the vehicle, and the bank owns a percentage, until the loan is paid off. Based on the down payment, and the number of months that have progressed since the inception of the loan, there may be equity in the used car. Once equity is earned, the vehicle can be sold for profit or traded-in and the surplus applied to the purchase of another vehicle.
While there are countless different types of used car loans, the best advice on a used car auto loan is to borrow the money for as short of a term as possible. If you can afford the payment, choose a 24-month or 36-month loan over a 48-month (or longer) loan. There are several reasons to choose a shorter loan:
1) Less interest will accrue on the used auto loan, so the car will cost less.
2) Out-of-pocket repairs increase the older a vehicle gets. A short term loan will keep you from making payments and repairs at the same time.
3) You will find yourself in an equity position sooner when you get the best used auto loan rate with shorter terms.
0 responses so far ↓
There are no comments yet...Kick things off by filling out the form below.