how to finance a used car

If you are looking for How To Finance A Used Car, then look no further than this article. It includes how to finance a used car with no credit. Perhaps you are interested in how to finance a used car from a private seller, then reading this article may help you.

New cars these days have better safety features and more tech gizmos than models from a decade ago. And let’s face it: Trading in a beat-up clunker with grimy seats is an enticing idea.

But many Americans make big mistakes buying cars. Take new car purchases with a trade-in. A third of buyers roll over an average of $5,000 in debt from their last car into their new loan. They’re paying for a car they don’t drive anymore. Ouch! That is not a winning personal finance strategy.

But don’t worry — NPR’s Life Kit is here to help. Here’s how to buy a car without getting over your head in debt or paying more than you have to.

how to finance a used car with no credit

How To Finance A Used Car

1. Get preapproved for a loan before you set foot in a dealer’s lot.

“The single best advice I can give to people is to get preapproved for a car loan from your bank, a credit union or an online lender,” says Philip Reed. He’s the autos editor at the personal finance site NerdWallet. He also worked undercover at an auto dealership to learn the secrets of the business when he worked for the car-buying site Edmunds.com. So Reed is going to pull back the curtain on the car-buying game.Article continues after sponsor message

For one thing, he says, getting a loan from a lender outside the car dealership prompts buyers to think about a crucial question. “How much car can I afford? You want to do that before a salesperson has you falling in love with the limited model with the sunroof and leather seats. “

Reed says getting preapproved also reveals any problems with your credit. So before you start car shopping, you might want to build up your credit score or get erroneous information off your credit report.

And shop around for the best rate. “People are being charged more for interest rates than they should be based upon their creditworthiness,” says John Van Alst, a lawyer with the National Consumer Law Center.

Van Alst says many people don’t realize it, but the dealership is allowed to jack up the rate it offers you above what you actually qualify for. So with your credit score, “you might qualify for an interest rate of 6%,” says Van Alst. But, he says, the dealership might not tell you that and offer you a 9% rate.If you take that bad deal, you could pay thousands of dollars more in interest. Van Alst says the dealership and its finance company, “they’ll split that extra money.”

So Reed says having that preapproval can be a valuable card to have in your hand in the car-buying game. It can help you negotiate a better rate. “The preapproval will act as a bargaining chip,” he says. “If you’re preapproved at 4.5%, the dealer says, ‘Hey, you know, I can get you 3.5. Would you be interested?’ And it’s a good idea to take it, but make sure all of the terms, meaning the down payment and the length of the loan, remain the same.”

One word of caution about lenders: Van Alst says there are plenty of shady lending outfits operating online. Reed says it’s a good idea to go with a mainstream bank, credit union or other lender whose name you recognize.

2. Keep it simple at the dealership.

If you’re buying a car at a dealership, focus on one thing at a time. And don’t tell the salespeople too much. Remember — this is a kind of game. And if you’re playing cards, you don’t hold them up and say, “Hey, everybody, look — I have a pair of queens,” right?

So at the dealership, Reed and Van Alst both say, the first step is to start with the price of the vehicle you are buying. The salesperson at the dealership will often want to know if you’re planning to trade in another car and whether you’re also looking to get a loan through the dealership. Reed says don’t answer those questions! That makes the game too complicated, and you’re playing against pros. If you negotiate a really good purchase price on the car, they might jack up the interest rate to make extra money on you that way or lowball you on your trade-in. They can juggle all those factors in their head at once. You don’t want to. Keep it simple. One thing at a time.

Once you settle on a price, then you can talk about a trade-in if you have one. But Reed and Van Alst say to do your homework there too. A little research online can tell you what your trade is worth in ballpark terms. Reed suggests looking at the free pricing guides at Edmunds.com, Kelley Blue Book and NADA. On Autotrader, you can also see what people in your area are asking for your car model. And he says, “You can get an actual offer from Carvana.com and also by taking the car to a CarMax, where they will write you a check on the spot.”

So he and Van Alst say don’t be afraid to walk away or buy the car at a good price without the trade-in if you feel the dealership is lowballing you on your old car. You have plenty of other good options these days

.Here's how to buy a car without getting over your head in debt or paying more than you have to.

3. Don’t buy any add-ons at the dealership.

If you’ve bought a car, you know how this works. You’ve been at the dealership for hours, you’re tired, you’ve settled on a price, you’ve haggled over the trade-in — then you get handed off to the finance manager.

“You’re led to this back office. They’ll often refer to it as the box,” says Van Alst. This is where the dealership will try to sell you extended warranties, tire protection plans, paint protection plans, something called gap insurance. Dealerships make a lot of money on this stuff. And Van Alst says it’s often very overpriced and most people have no idea how to figure out a fair price.

“Is this add-on, you know, being marked up 300%? You don’t really know any of that,” Van Alst says. So he and Reed say a good strategy, especially with a new car, is to just say no — to everything. He says especially with longer-term loans, there’s more wiggle room for dealers to try to sell you the extras. The finance person might try to tell you, “It’s only a little more money per month.” But that money adds up.

“Concerning the extended factory warranty, you can always buy it later,” says Reed. “So if you’re buying a new car, you can buy it in three years from now, just before it goes out of warranty.” At that point, if you want the extended warranty, he says, you should call several dealerships and ask for the best price each can offer. That way, he says, you’re not rolling the cost into your car loan and paying interest on a service you wouldn’t even use for three years because you’re still covered by the new car’s warranty.

Gap insurance promises to cover any gap between the purchase price of replacing your almost-new car with a brand-new car if your regular insurance doesn’t pay for full replacement if your car gets totaled. Van Alst says gap insurance is often overpriced and is fundamentally problematic. If you still want the product, it’s best to obtain it through your regular insurance company, not the dealer.

4. Beware longer-term six- or seven-year car loans.

A third of new car loans are now longer than six years. And that’s “a really dangerous trend,” says Reed. We have a whole storyabout why that’s the case. But in short, a seven-year loan will mean lower monthly payments than a five-year loan. But it will also mean paying a lot more money in interest.

Reed says seven-year loans often have higher interest rates than five-year loans. And like most loans, the interest is front-loaded — you’re paying more interest compared with principal in the first years. “Most people don’t even realize this, and they don’t know why it’s dangerous,” says Reed.

Reed says that if you want to sell your car — you decide you can’t afford it, or maybe you have another kid and need a minivan instead — with a seven-year loan you are much more likely to be stuck still owing more than the car is worth. So he says, “It puts you in a very vulnerable financial situation.”

A better way to go, Reed says, is a five-year loan for a new car and “with a used car you should really finance it for only three years, which is 36 months.” One reason that makes sense, he says, is that if your used car breaks down and isn’t worth fixing — say the transmission totally goes — you’re more likely to have paid off the loan by that time.

Reed says a five-year loan make sense for new cars because “that’s been the traditional way — it’s kind of a sweet spot. The payments aren’t too high. You know the car will still be in good condition. There will still be value in the car at the end of the five years.”

Also, Van Alst and Reed say to make sure dealers don’t slip in extras or change the loan terms without you realizing it. Read carefully what you’re signing.

Reed says a colleague at NerdWallet actually bought a minivan recently and “when she got home, she looked at the contract.” She had asked for a five-year loan but said the dealership instead stuck her with a seven-year loan. “And they included a factory warranty which she didn’t request and she didn’t want.” Reed says she was able to cancel the entire contract, remove the extended warranty and get a rebate on it.

“But the point of it is,” he says, “I mean, here’s somebody who is very financially savvy, and yet they were able to do this to her. And it’s not an uncommon scenario for people to think that they’ve got a good deal, but then when they go home and look at the contract, they find out what’s been done to them.”

5. Don’t buy too much car. And consider a used car to save a lot of money!

“The golden rule is that all of your car expenses should really be no more than 20% of your take-home pay,” says Reed. And he says that that’s total car expenses, including insurance, gas and repairs. “So the car payment itself should be between 10 and 15%.”

And if a new car with a five-year loan doesn’t fit into your budget, you might decide you don’t really need a brand-new car.

“We’re actually living in a golden age of used cars,” says Reed. “I mean, the reliability of used cars is remarkable these days.” Reed says there is an endless river of cars coming off three-year leases that are in very good shape. And even cars that are older than that, he says, are definitely worth considering. “You know, people are buying good used cars at a hundred-thousand miles and driving them for another hundred-thousand miles,” says Reed. “So I’m a big fan of buying a used car as a way to save money.”

He acknowledges that which car you buy matters and that it’s a good idea to read reviews and ratings about which brands and models are more or less likely to run into costly repair problems down the road. He says some European cars are famously expensive to maintain.

NPR has a personal finance Facebook group called Your Money and Your Life. And we asked group members about car buying. Many said they were shocked by how much money some other people in the group said they were spending on cars. Patricia and Dean Raeker from Minneapolis wrote, “40 years of owning vehicles and our total transportation purchases don’t even add up to the cost of one of the financed ones these folks are talking about.”

Dean is a freelance AV technician, and Patricia is a flight attendant. They say, “our nicest, newest purchase was a 2004 Honda Accord for $2400, bought last year, that with regular maintenance could likely last another 100,000+ miles.” And they say they “can’t understand those who insist on driving their retirement funds away.”

Even if you buy a slightly newer used car than the Raekers’, the couple raises a great point. What else could you be spending that car payment money on? And if you can cut in half what you might otherwise spend, that’s a lot of extra money for your retirement account, your kids’ college fund or whatever else you’d rather be doing with that money.

how to finance a used car from a private seller

Top Used Car Websites

Buying a new or used vehicle is a big decision — both financially and in terms of the amount of time we spend in our cars. In the twenty-first century, there is an app for car buying. Cars, trucks, and SUVs of all types can be found online. You do not even need to leave your couch to research, browse, inquire, and finance your next vehicle.

Here are some of the best used-car websites today.


1. Autolist.com

Because Autolist is an aggregator (like Kayak.com), the easy-to-use Autolist site displays millions of vehicles from many different sources. Users can view details such as the length of time a given vehicle has been on the market, plus any price changes for that vehicle. Autolist has one of the highest-rated used-car apps available. It works with both Android or iOS phones, and just like the website, it checks multiple online databases to help you locate your dream car.

The app also has instant price-drop alerts and high-res pictures to help you find the best deals on the most local listings. Shoppers can even apply for financing through the Autolist app. Autolist offers a unique feature called family sharing. With family sharing, as many as six family members can share information through the app in real-time. Autolist also offers reviews, industry insights, a Rotten Tomatoes-style aggregator of older vehicle reviews, and buyer’s guides to help steer you through the car-buying process.

Go to Autolist


2. Autotempest.com

Similar to other websites on this list, AutoTempest’s search results are drawn from multiple sources. Their website and app work similarly to the others sites, including the ability to save searches. They have a lot of other useful information as well, including an up-to-date blog, buying guides, and car reviews. While you can filter your car searches, the criteria for doing so are much more limited compared to other sites, although some might consider it to be streamlined. Either way, the essential information is provided. Choices include make, model, distance, price, year, mileage, vehicle type, transmission, and whether it’s for sale from a private party or by a dealer.

Go to Autotempest


3. Autotrader.com

Because Autotrader.com nearly predates the internet itself, it has a longstanding reputation that has been built upon decades of trust. Available as a website since 1997, Autotrader has over 3 million listings drawn from 40,000 dealers and 250,000 private sellers, and its vehicle selection is immense. The Autotrader website has a wide variety of filters that can help you narrow your search down to exactly the type of vehicle you’re looking for. You can save your searches and even apply for insurance and a loan through the site.

Go to Autotrader


4. BringATrailer.com

Bring A Trailer started as a listing of interesting cars for sale around the country, now it is a full-blown auction site, with rare and unusual vehicles often selling for astounding figures. It is the place to find that social ride or merely kill an endless amount of time browsing high-dollar exotics and absurdly clean early 2000s commuters. Recently, a pristine 2000 Honda Civic SI sold for $50,000. If you are in the market for something unusual or have wads of cash to blow, check out BringATrailer.com.

Go to Bring A Trailer


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5.CarGurus.com

This is a company that seeks to build trust through transparency. You will find many of the same search options on their website as you’ll find on the other sites. However, you will also find the CarGurus valuation of a given vehicle based on typical search criteria on top of usual search options. This algorithm used by CarGurus is similar to the methods used by KBB. The information they use to make this determination includes comparable car listings and pricing data on vehicles that have recently sold. Ratings are based on mileage, trim, vehicle history, and a multitude of other factors. CarGurus honestly rates each available car deal as being Overpriced, High, Fair, Good, or Great.

Go to CarGurus


6.Carmax.com

Carmax is a dealership specializing in high-quality used cars, many available with the internet-famous Carmax warranty. This website isn’t the best for those looking for a killer deal because of its no-haggle policy, but it is an excellent place for people who want the most effortless car shopping and buying experience. For those looking for the ease of browsing and buying online, without the anxiety-inducing Craigslist test drive, Carmax can be a good option. Browse, buy, and the car can be ready for pick up, virtually all online or on their mobile app.

Go to Carmax


7. Cars.com

Cars.com is one of the largest automotive search engines. With thousands of listings covering almost every car, there is also a new tool that rates the value of used vehicles relative to the current market trends. Cars.com has fewer private sellers, but it’s a great way to search dealers in your area and compare pricing for similar vehicles. Cars.com also has extensive sorting options to narrow your search by the specs and features you are looking for and leaving out those you do not want. In addition to consumer reviews, the site has now built up an extensive archive of expert reviews written by its editorial staff.

Go to Cars.com


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8. CarsDirect.com

This site works to simplify buying a car, and like Autotrader and others on this list, they can help you find financing. The search criteria include make, model, distance, price, mileage, year, color, engine, and even photo availability. CarsDirect also features buying guides, rankings, and vehicle comparisons. Like similar sites, you can save your searches and vehicles of interest. The website also has educational videos, including reviews, car news and reports, and tools that include a trade-in valuation.

Go to CarsDirect


9. Carvana.com

Carvana is another used car dealer that built a business around making the buying experience easier. Buy with confidence with a 7-day money-back guarantee, and have your car delivered to your door. All Carvana vehicles have accident-free vehicle history and pass a 150-point inspection. You can also sell your vehicle to Carvana, even without buying from them. They claim you will get a real offer after filling out a form, which takes just a couple of minutes. With used car values near all-time highs, it may be a good time to see what your car is worth to them. Carvana is also the inventor of the car vending machine changing car sales forever. It is a neat gimmick worth checking out if you want to purchase a car in person.

Go to Carvana


10. Craigslist.org

Primarily a classified site, Craigslist doesn’t have many fancy graphics or options, but the site’s selection is fairly broad, and postings usually include photos. You will need to be super savvy and utilize auto checks if you’re going this route because the site is rife with scammers, but it is possible to negotiate a worthwhile deal here.

Search filters through Craigslist include distance, price, make and model, year, mileage, condition, number of cylinders, drivetrain and fuel type, color, size, title status, vehicle type, and transmission type. A point of interest for some is that some sellers on Craigslist might accept cryptocurrency like Bitcoin in exchange for the vehicle they’re selling. You can also create email alerts for the specific attributes of a vehicle that you’re looking for.

Go to Craigslist


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11. Edmunds.com

Edmunds originated as a paperback booklet available at newsstands. Decades of experience have made Edmunds a well-respected name in the industry. The website allows you to save searches and favorites and also lets you filter your selections. Although their search functions look similar to the ones available on other sites, they often have more features and options to choose from. Features that allow buyers to narrow and refine more thoroughly. Edmunds also has a wealth of advice and articles to help educate people about the car-buying process and the vehicles themselves.

Go to Edmunds


12. EnterpriseCarSales.com

If you don’t mind a car with plenty of miles on it, Enterprise’s former rental cars can be a good choice. They offer a no-questions-asked, seven-day “buyer’s remorse” period, in addition to their 12-month or 12,000-mile limited powertrain warranty and one year of roadside assistance. Enterprise also provides financing. Unlike most of the other sites mentioned here, the company sells cars only from one source: their retired rental fleets. They also take trade-ins and have special programs for college graduates or first-time car buyers. The website allows you to search by the monthly payment you can afford alongside the same criteria you’ll find on other sites.

Go to Enterprise Car Sales


13. KBB.com

The words “Blue Book price” have been a part of the American vocabulary for nearly a century, and the Kelley Blue Book website and app both trade on this longstanding name recognition. Not only are they known for providing accurate estimates of your car’s market value, but their site has tools for checking your credit score and calculating car payments. Expert reviews, top ten lists, and recall postings make this site a longtime go-to favorite for automotive information. They also cover motorcycles, snowmobiles, and personal watercraft such as jet skis. KBB also offers an instant cash offer section on their website.

Go to Kelley Blue Book


14. Hemmings.com

For classic car, truck, or motorcycle collectors, this is a ‘don’t-miss’ destination. In addition to vehicles, Hemmings helps you locate hard-to-find parts for project cars. Search for vehicles or parts by make, model, type, price range, and category. Hemmings offers a more community feel, through maintaining a blog and regularly sending out newsletters. Hemmings also sells merchandise related to this niche market. They have an email list, fantastic videos, and special events, not to mention apps for Android and iOS, and several print publications to subscribe to.

Go to Hemmings

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