Used Car Financing: The Best Way to Get a Used Car Loan
- Shopping around for a car loan can save you an average of $2,346 by choosing the offer with the lowest annual percentage rate (APR).
- You can apply for an auto loan directly with a single lender or get offers from several lenders using an online marketplace.
- Used car loan rates are typically higher than new car rates, but monthly payments are lower because used cars have lower purchase prices.
Taking out a loan is a big commitment. It’s an even bigger commitment when you’re purchasing a high-value item, like a car. There’s a lot to lose – if you fall behind on payments due to an unaffordable loan, your lender could repossess your vehicle.
Buying used instead of new could save you some money, but make sure you understand the ins and outs of financing before you sign on the dotted line. Get familiar with the nuances of APR, how to get preapproved for a used auto loan and how to shop around for the best rates.
Should you finance a used car?
Any time you take out a loan, you want to ensure you have the disposable income to pay it back.
Let’s say you need a vehicle to get to work. You don’t have cash on hand to cover the purchase, so you take out a loan. If you’re not making enough money to pay that loan back in full every month, your credit score could take a hit. In extreme circumstances, your vehicle could get repossessed, too.
Maybe you can afford the payments, but you don’t have a healthy emergency fund. This could create problems if you need to pay for emergency repairs, which tend to be more common with used vehicles.
If you know you can make payments and have a financial cushion to manage unexpected mechanic bills, deciding between financing a new car versus a used vehicle comes down to the numbers. Loans for new vehicles tend to come with lower interest rates.
That said, if the sticker price is higher, you could still end up paying more in real dollars over the life of the loan, despite the lower APR. Depending on how old the used car is, it often ends up being cheaper to insure than a new vehicle, too.
You should finance a used car if:
- You can afford repairs to a used car.
- You want a lower total loan cost than with a new car.
- You need a vehicle for work, but can’t pay for it in cash.
- You want lower insurance premiums compared to a new car.
You should avoid if:
- You can’t afford to keep up with monthly payments.
- The seller won’t provide a vehicle history.
- You want to secure the lower interest rates that come with new vehicle loans.
Used car lenders
| Lender | Starting APR | Loan terms | Loan amounts | Min. credit score | |
|---|---|---|---|---|---|
 | 6.27% | 24 to 84 months | Starting at $4,000 | 500 | |
 | 4.99% (with discounts) | Up to 84 months | Up to 130% of the car’s value | Not specified | |
 | 4.00% | 12 to 84 months | Up to $100,000 | 600 |
Why we picked it: Capital One offers car loans with low starting rates. You can customize your loan term to be short or long, depending on your needs and budget. Capital One approves borrowers with scores as low as 500, so you may be able to snag a bad credit car loan.
How to qualify: You could be eligible for a car loan through Capital One as long as you have a credit score of at least 500. You can prequalify on Capital One’s website to get an idea of where you stand.
Capital One also has vehicle eligibility requirements. To be eligible for financing, you need to have a monthly income of at least $1,500, and the car must meet these requirements:
- Be a model year 10 years or newer
- Have fewer than 120,000 miles
- Be purchased at a participating dealership
- Be worth at least $4,000
Why we picked it: While many lenders charge higher rates for used car loans, Digital Federal Credit Union (DCU) advertises loans with the same low interest rates for used and new cars. DCU also offers rate discounts if you make eligible electronic payments or are financing a fully electric car.
How to qualify: You must be a DCU member to take out a loan. To join, you must open a DCU savings account with a deposit of at least $5 and meet one of the following requirements:
- Be related to a current member
- Live, work, worship or go to school in certain Massachusetts or Oregon communities
- Work for or be retired from a participating employer
- Join a participating association (annual dues start from between $8 and $15)
Why we picked it: Outside of having ultra-low starting rates, Southeast Financial Credit Union offers car loans with no model year or mileage restrictions. Some lenders don’t offer private-party car loans, but Southeast Financial Credit Union does — and you won’t pay higher interest rates, either.
How to qualify: You must have a credit score of at least 600 to qualify for an auto loan. You also need to join the credit union before you can borrow.
All SFCU members must open a savings account with a deposit of at least $5. To become a member, you must meet one of the requirements below:
- Make a $5 donation to Autism Tennessee
- Be a current employee or retiree of a Southeast Financial Select Employee Group
- Be related to a current SFCU member
- Live, work, worship or go to school in certain parts of Tennessee, Kentucky or Mississippi
Two of our three picks for used auto lenders come from credit unions, and that’s no coincidence. Credit union auto loans tend to come with low APRs, so it’s worth taking the time to check your car loan rates with a credit union.
See multiple lenders compete for your used car loan
Instead of applying to just one lender and hoping for a good rate, see multiple lenders compete for your business — so you can choose the best offer. You could save an average of $2,346 on your car loan by using the LendingTree marketplace to shop for loans and then choosing your cheapest offer.
Fill out one form and get lenders from the country’s largest network to compete for your business.
Tell us what you need. Take two minutes to tell us who you are and how much money you need for your vehicle — we’ll take care of the rest. It’s free, simple and secure.
Shop your offers. We’ll send you offers from up to five trusted lenders. Compare your offers side by side to see which one will save you the most money.
Get your money. Finalize your loan with your lender, and you’ll be on the road in no time. You could see money in your account in as soon as 24 hours.
Expect higher rates, but lower monthly payments
Lenders take on more risk by loaning you money for an older vehicle. Used cars are more likely to have mechanical issues or break down entirely. Lenders charge higher rates to make up for the additional risk.
Even though rates tend to be higher for used cars, monthly payments are lower on average when compared with new car payments. That’s because used cars tend to be cheaper, so people borrow less when they buy a used car.
Below are the average new and used car APRs lenders on the LendingTree platform offer based on credit score. Use this to compare used car loan offers you get from lenders.
| Credit score range | Average new car APR | Average used car APR |
|---|---|---|
| Excellent (800 and above) | 6.81% | 7.92% |
| Very good (740-799) | 6.83% | 7.59% |
| Good (670-739) | 8.22% | 10.75% |
| Fair (580-669) | 19.15% | 21.13% |
| Poor (Under 580) | 22.11% | 23.82% |
How to get a used car loan
1. Set a budget
Before you start applying for a used car loan, decide how much car you can afford with a car affordability calculator.
Then, use a car payment calculator to compare what you can afford with the monthly payments you’d make on the car you want to buy. You can find the average price of the car you want on used car websites. Just make sure to factor in all of the costs of owning a car when deciding what will fit in your budget.
Down payment: 10% (or more) of the purchase price for a down payment
Fees: 8% – 10% of the purchase price for dealer fees
Insurance: Average of $2,101 a year for full-coverage insurance
Gas/fuel: Average of $3,375.40 over twelve months, according to the U.S. Bureau of Labor Statistics
Maintenance: Average of $1,160 a year for car maintenance and repairs
2. Gather your documents
Before you apply for your used car loan, make sure your documents are in order. Common documents required for a car loan include:
- Proof of identity, like your driver’s license, passport or U.S. visa
- Proof of income, like a pay stub, W-2 or bank statement
- Proof of residence, like a lease, mortgage or utility bill
- Car title and registration if you’re trading in your current car
Many dealers require you to show insurance documents before you drive off the lot. Take the time to find affordable used car insurance before going to the dealership.
3. Shop around for a loan
One of the biggest mistakes you can make when financing a used car is to only apply with one lender. Check your rates with several lenders to make sure you’re getting the best deal.
Get preapproved for a car loan before going to the dealer to give yourself a leg up when negotiating on the price of your car.
What to do after buying a used car from a dealer
1. Get car insurance
It’s a good idea to get your new-to-you vehicle insured before driving off the lot. If you already have a policy, the coverage you carry now should extend to your recently purchased car for some time — typically seven to 30 days, depending on the company.
Still, this is an unnecessary risk. Only the coverage you have currently will apply. If you have liability only, then your new car will also only get liability. If you cause an accident on the way home, your insurance won’t cover the damage to your new car (you need collision insurance for that).
Dealers also usually require proof of coverage before you leave. You can call your insurance company to add the car while you’re at the dealership. If you don’t have a policy, most companies usually offer same-day insurance if you’re buying a car.
2. Secure your paperwork
Put your temporary registration and proof of insurance in the glove box. You should keep the title, bill of sale and financing paperwork inside your home.
3. Be on the lookout for your tags and registration
A dealer usually provides a temporary tag and registration when you buy a used car. You should receive the car’s registration and permanent tags in the mail. When these arrive, attach the permanent tags to your vehicle and put the registration in the glove box.
4. Search for recalls
Over time, automakers may recall vehicles to replace parts that could affect your safety. The manufacturer typically covers the cost of replacing defective parts. Car owners may receive a notice in the mail, but what if the recall happened before you bought the car? That’s why you should check for recalls online. If you find an open recall, follow the recall instructions to get your car fixed as soon as possible.
5. Schedule maintenance
A used car may have a few years of wear and tear prior to your purchase. In a perfect world, the dealer should have done preliminary maintenance before selling the car. Now that the car is yours, stay on top of any scheduled maintenance needs, such as oil changes or tune-ups, to keep your used car running smoothly.
What to do after you buy a used car from a private seller
You’ll likely save money on dealer fees by buying a used car from a private seller instead of at a dealership. But without a dealer to prepare paperwork, you should expect to handle the purchase process independently. When you buy a used car from an independent seller, be prepared to:
1. Get an inspection
You may be required to get an inspection when you buy a used car from a private seller. Inspection requirements may differ based on the car’s age, as well as the state and county where the vehicle will be registered.
For example, Maryland and New York require a safety inspection before transferring ownership of a vehicle. To register your vehicle in certain counties of Colorado, you must complete an emissions test on vehicles with model years 2017 or older.
Check with your state’s Department of Motor Vehicles (DMV) about inspection requirements for private car sales. Also, consider getting a used car inspection from a trusted mechanic before you buy.
This is not the same as the state-required inspections we’re talking about here, but buying from a private party can be risky — who’s to say that they’re telling the truth about the vehicle’s condition?
2. Insure the car
Whether you’re buying from a dealership or a private party, you should insure your newly purchased car before driving it.
3. Transfer the title and registration
When you buy a used car from a private seller, you must transfer the title and register the vehicle in your name.
Typically, the seller signs the title over to the buyer by completing the title assignment section of the certificate. The buyer then brings the assigned title and any other required documents to the local DMV office. However, title and registration processes vary by state, so go to your state’s DMV website to learn what’s required for a DMV transfer of title.
Most states also require you to pay sales tax when buying a used car. If you purchase from the dealer, the state sales tax is usually included as part of the vehicle’s price. In private party car sales, the buyer typically pays the sales tax to title and register the car.
Since taxes vary based on your state and the age of the car, check with your local DMV office to find out how much you need to pay.
4. Pick up temporary tags
If you aren’t transferring a license plate, you may be given temporary tags when registering your vehicle with the DMV. A permanent license plate may be mailed to you, usually within a few weeks.
5. Save the paperwork
You should only keep a copy of the car’s current registration and proof of insurance inside the vehicle. The vehicle’s bill of sale, title, financing documents and any other completed paperwork should be kept in a secure place inside your home.
As a precaution against identity theft, any personally identifiable information can be redacted from any documents left in the car.
6. Check for recalls
A car manufacturer may recall vehicles to repair or replace a part that may be unsafe. While manufacturers typically notify car owners of the recall by mail, it’s unlikely you’ll receive these notices if you buy a used car from a private seller. You can check for recalls on the National Highway Transportation and Safety Administration (NHTSA) website. If you find a recall on your vehicle, you should take immediate steps to repair your car.
7. Schedule maintenance
Regularly maintaining your vehicle can improve its performance and extend its life. Be sure to change the oil and monitor fluid levels as recommended. Other parts may require replacement based on the odometer reading, so be sure to consult the owner’s manual for scheduled maintenance on components such as the vehicle’s transmission, belts and spark plugs.
Frequently asked questions
Different lenders have different credit score requirements for used auto loans. The better your score, the better your chances of qualifying. A credit score of at least 661 should get you in the door with most lenders, though some will still lend to you with a bad credit score – albeit at a higher rate.
A respectable down payment for a used car is at least 10%. The more you can put down, the less you’ll have to borrow. This becomes important because every dollar you borrow will incur interest. The more you can pay upfront, the less expensive your loan will be over time.
Yes, if you are serious about purchasing a vehicle, getting preapproved for an auto loan has benefits. It will give you a good idea about your personal APR offer, and the total loan amount can help you better negotiate while at the dealership. Understanding your borrowing power can also prevent you from falling in love with a vehicle outside of your price range.
Usually, it’s better to secure financing from a lender as they tend to offer lower rates. Sometimes dealerships will offer specials like 0% APR auto financing, though this is more common for new vehicles rather than used.
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