- Posted by Sanderson Lincoln
- On June 7, 2016
There’s no getting around the fact that cars are expensive. A high-quality pre-owned vehicle will still set you back thousands of dollars, and unless you’ve got that amount in cash, you’ll need a used car loan.
Here at Sanderson Lincoln, one of the most common questions we get is about these loans work.
Let’s take a look.
How Does a Used Car Loan Work?
A used auto loan works like a loan for a new car: you borrow money to pay for the car and pay interest on that amount. Normally the car is collateral, which means that if you fail to keep up with your payments, it can be taken away from you to pay your debt.
The issue of collateral is especially important for used cars because the age of the car can become a factor in the size and length of the loan you can get, as well as the interest you pay.
Newer cars are likely to get you a more favorable loan because they are more likely to be in good condition if the lender ever needs to repossess them, and so represent less risk to the lender.
What Determines the Interest Rate?
Calculating the rate of interest you pay is complicated, taking into account a variety of factors based on the perceived risk of lending you money. This is why the rates you’re offered may vary slightly from provider to provider.
Some of the key factors include:
- Your credit rating – Your credit score and history give lenders an idea of how you deal with money. If you have a poor credit rating, your interest rate is likely to be higher. Conversely, a great credit rating can give you access to the best possible rates.
- Loan length – The longer the term of your loan, the higher your interest rates. Shorter loan terms give lower interest rates, but you’ll need to pay back more money per month.
- The age of the car – Typically, a newer car will receive a lower rate because it is easier to estimate how much it will depreciate and what it will be worth if repossessed and sold to someone else. For an older car, depreciation is harder to calculate, and so the risk of repossessing a car with little resale value drives the interest rate up.
Dealerships, banks, and credit unions all offer used car loans – which should you choose? The most convenient option is to get your financing through a dealership. This is the fastest method and the one that will get you driving home in your desired car as quickly as possible.
Bank and credit unions also offer competitive rates, but these loans can take several days to set up, by which time someone else might have driven off in your perfect car! Some banks and credit unions won’t finance older used cars either.
At Sanderson Lincoln, our team of dedicated finance experts is ready to help you get the credit you need. We don’t just have the finest used cars in Phoenix – we have the best finance team as well! Our team has access to multiple credit sources, so we can find the perfect option for you. We help customers with great credit, bad credit, and even no credit get the auto they desire at a rate they can afford.
Are you looking to finance your car with Sanderson Lincoln? Contact us online or at 800-796-4856 for information and advice on your used car loan.