While buying a used car you can not only save thousands of dollars in depreciation, taxes and factory costs, but also wind up spending more on your financing. As new car manufacturers lure buyers with 0% interest rates and no-money-down offers, it’s hard to find a better deal when you’re purchasing a used vehicle.
If you’re planning to buy a used car, keep reading for some financing tips that will save you money.
1. Shop Around for a Better Rate
If you need to obtain financing for your used car purchase, try shopping around for the best rate. While the dealership may often offer you a good financing option, you should to check with your bank and other lending institutions to see if they can do better.
Other car financing options that may get you a better rate include a line of credit, which can sometimes be as low as 5%, or simply offer a low-interest home equity line of credit loan from your lending institution.
A slight drop in the interest rate can save hundreds – sometimes thousands – of dollars over the life of the loan, so this is a worthwhile investigation.
2. Be Ready to Walk
If you’re obtaining financing directly through the used car dealership and you’re not happy with the offered rate, be ready to politely walk away from the deal. Most dealerships would rather lower their interest rate by a half point or full point than see a potential sale walk through the exit door – especially in tough economic times like today when gasoline prices are so high and car sales are low.
Additionally, if you are able to wait until the end of a month to buy from a dealer, you may have some additional leverage with salesmen who are under pressure to meet a monthly or quarterly quota.
3. Pay in Cash
The best way to save on financing costs is to avoid financing and credit all together. If you can do it, pay in cash.
Let’s say you’re buying a five-year-old Civic for about $10,000 – that can be saved up in a year at a rate of about $833 per month or two years at $416 per month. Rather than taking out a car loan, put that money in a high interest-yielding savings account and you’ll reach your goal even faster.
4. Pay it Off Fast
If you can afford to do it, the faster you pay off your car, the less you pay in interest and financing costs. While it would be unwise to stretch your family budget too tight in an effort to pay off your vehicle, you should avoid long-term financing that drags on for four or five years.
5. Refinance Down the Road
Let’s say you need a new used car this year but you’ve just put money in the house, perhaps had a baby, had a dip in your credit rating and money is tight. Well, you might accept a higher interest rate now, but in a year – once things improve – you should investigate the prospect of refinancing that loan with another lending institution that can offer you a lower interest rate.