Buying a used car is a fantastic way to beat depreciation, but financing one can be a minefield. Lenders treat used cars differently than brand-new ones, often charging higher interest rates and enforcing strict vehicle restrictions. Before you head to the dealership, here is exactly how used car financing works and how to lock in the lowest rate possible.
Used Car Loans
A used car loan is a secured loan where the pre-owned vehicle you are purchasing serves as the collateral. If you default on your payments, the lender has the legal right to repossess the car.
Because used cars carry a higher risk of mechanical failure and unpredictable valuations, lenders typically charge interest rates that are 1% to 3% higher than new car loans. Your final Annual Percentage Rate (APR) will heavily depend on your credit history, down payment size, and the age of the vehicle.
