When we hear the term car finance, we immediately assume that we are talking about purchasing a brand new car. However, in Canada (and in many other countries), car loans are available for both brand new and previously owned vehicles as well.
There are some factors you must consider regardless you’re going to obtain financing for a brand new model or a used one. However, there are few points which specifically apply for the used car loans only, so make sure to check them out below as well.
4 Steps to Getting a Loan for a Used Car
1.Budget assessment: Budget assessment should be the first thing you need to do even before entering through the door of the dealership. The down payment, loan installment, insurance premium, and regular maintenance cost – these are the things you must take into account. If you’re buying a brand new vehicle, you can obtain a loan with 100% financing option, so in that case, there’s no need for a down payment. But for a used car, initial down payment is a must. Rest of the things are the same for both cases. Please remember that you’ll probably have to spend significantly more in the maintenance part, so that won’t be at par with the new car. Also, some parts are accessories would need to be replaced for a previously owned car, so that’s another difference compared to a new one.
2.Understand your budget: Just assessing budget is not enough unless you understand your ability the repay the loan amount till the last installment. Here the loan duration is a major factor, so you should assess your budget while keeping your income potential and spending power for that total duration. For example, if you’re taking the loan for a period of 5 years and you already have a plan to relocate to a new home after two years from today – make sure you have enough room in your bank account to cover both of the spendings, otherwise drop either one of the liabilities.
3.Where to look for loans: People usually rely on car dealerships when it comes to the car loan, or sometimes they apply to alternative financial institutions for loans. However, unless you have an excellent credit history, you will find it challenging to obtain a car loan with better features and favorable terms. Some companies can come to your rescue though in such cases, you can find them out just by Googling. They are specialist in securing loans for people with not-so-good credit history, and their terms are usually flexible as well. So you can do a little bit of research before you decide on where to apply for your car loan.
4.Affordability: You should decide the car model considering your budget over anything else. This is true for both new or used cars, but it’s a bit more important if you’re buying a used one. Because unlike new cars, where you can get 100% finance without any initial down payment, you have to spend a significant amount as the down payment for the used car. Furthermore, used cars would attract more maintenance cost than a new car, and if you’re buying an expensive used car model in the first place, the replacement parts would cost much higher obviously.