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Can You Finance a Used Car? And What’s the Best Way to Do So?

If you're looking to finance a used car, there are a few things you should know. First of all, is it even a good idea to do so? Let's find out.

The simple answer to this is yes, you absolutely can finance a used car. But the better question is—should you?

After all, aren’t there more risks to financing used instead of new cars?

Today, we’ll touch on those two questions as well as the best ways to go about financing your used car. Here’s what you need to know about used car loans.

They Might have Higher Interest Rates

Used cars tend to have higher interest rates than new cars for a variety of reasons:

Resale Value

It’s difficult to predict how much a used car will be worth when you want to sell it again, but with a new car, depreciation is easier to predict.

The lender makes up for this unpredictability by raising interest rates. That way the bank makes extra money in case the buyer bails out, or if the car has mechanical issues or excessive mileage.

If You Buy Used, You Probably Have a Lower Credit Score

Not everyone with a high credit score buys new cars, but most people with lower scores buy used because they can’t get those great deals on financing for a new car. Plus, the upfront cost tends to be too much for those with debt (which presumably caused their low credit) to pay.

Your Insurance Rate Could be Higher

Used cars don’t have as many safety features, have higher mileage, and are more likely to break down. That means, insurance rates on used cars are likely going to be higher.

But, if you finance any car, used or new, you’ll pay more because you’ll be required to purchase additional insurance.

If you purchase a car in full, you only have to buy liability insurance that covers the cost of damage done to other cars but not your own in the case of accident. However, if you finance a car, you’ll need to get comprehensive insurance that covers the cost of the damages done to your car as well. This ensures that the lender is protected in the case of an accident.

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Credit Unions are a Great Place to Get Used Car Loans

If you do decide to finance a used car because you simply can’t afford a new one, or because you just don’t want to spend a ton of money, you’ll need to find the best interest rate possible.

That just might be at a credit union.

Your credit union knows you, so you’ll get a more personalized approach to banking. If you’ve got a few bad stamps on your credit report, going in to see one of the folks at your credit union will likely help you get a better interest rate. They’re also a lot more pleasant to talk to than car salesmen.

Also, speaking of interest rates, they’re often lower at credit unions.

There are Other Options Besides Credit Unions

While credit unions are one of the better options for auto loans, if you aren’t a member, you may want to try looking elsewhere. Here are just a few other options:

Auto Loans Online

There are a lot of sites offering solid rates on loans. Our favorite is an aggregator called Fiona because they search all the top loans available from all the different lenders and present them on one clean, simple page. It’s free and takes just a few minutes to get a response! Really worth checking out.

Peer-to-Peer Auto Loans

Peer-to-Peer loans, as the name suggests, are loans offered by individuals and investors instead of traditional banks. One advantage is that with these loans, if you can’t make a payment, your car won’t be repossessed. Of course, your credit will take a big hit instead, so you’re not off the hook by any means.

You can also shop at a dealership as if you have cash, instead of being limited to certain makes or models.

LendingClub is one of our favorite peer-to-peer lending site. They provide 3- and 5-year loans of up to $40,000. You’ll need a credit score of at least 600 (see how to get your credit score for free now).

You Should Still Try to Pay Cash

As always, if you’re going to buy used (or even new, if you can afford it), you should try paying for your car in full. That, after all, is why a lot of people buy used in the first place.

Buying in full eliminates many extra costs. You don’t have to pay for extra insurance if you don’t choose to, and you won’t have a high interest loan payment. All you’ll have to pay for is basic insurance and repairs. If you can find the right used car, hopefully the repairs won’t equal the cost of just financing a new car.

If you can’t pay in full for your car, follow the same rule as you would for a house down payment—put 20% down.

So, Should You Buy Used or New?

Honestly, that’s up to you. There are two polar opposite arguments that swear by one or the other.

But you need to ask yourself a few questions to decide for yourself:

Do You Want to Pay More Upfront for a More Reliable Car?

Buying a new car comes with a lot of perks. First of all, new cars have way more tech and safety features. You also get a factory warranty when you buy new, as well as fewer maintenance costs overall.

Are You Willing to Take on More Potential Problems, but Pay a Lower Price?

Some people swear by only buying used (forewarning, I’m one of those people), because it’s easier to pay for a car in full and used cars have lower depreciation costs.

Also, with sites like Edmunds, it’s easy to see reviews and the history of the car you’re looking to buy.


While it’s completely possible to finance a used car, it might not be the best idea for everyone. But whether you go with a used or new car, financing is up to you. All in all, if you want to purchase a used car, your best bet is to pay in full when you can.

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