Purchasing a preowned vehicle can help you get into a new-to-you car for much less than a new purchase. Cars experience their steepest depreciation when they first drive off the lot, so a vehicle that's just a few years old will be far less than one that's brand-new, while still offering years of efficient performance. Our Titus-Will staff has put together what you need to know to secure an affordable loan for your next preowned car purchase in Tacoma, including how to finance a used car and how to apply for car financing.
The Basics of Used Car Financing
Financing a used car allows you to purchase a vehicle that costs more than you currently have in your pocket. While you should try to finance the smallest amount possible, you can't always purchase a preowned vehicle entirely with cash. Savvy vehicle financing will help you access the car you need now in exchange for predetermined monthly payments over the life of your loan.
Three key elements determine how much you'll pay for your used car financing:
- Down payment: The amount you put down goes directly toward the cost of your car, minimizing the amount that you'll finance. If you're trading in your previous vehicle, you can use this as some or all of your down payment.
- Vehicle price: Research comparable preowned vehicles to negotiate a good deal for your vehicle. The purchase price minus your down payment is the sum you'll finance.
Interest rate: You must pay interest on any vehicle loan. The interest rate determines how much extra you pay for the convenience of using a car loan. This is expressed as your annual percentage rate. - Loan term: The vehicle price plus the interest rate is the total sum you'll have to repay. Divide this by the number of months in your loan term to understand your monthly payments.
Evaluating Your Financial Health
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Before you start car shopping, you should evaluate your financial health. Check your credit score to get an idea of the loan terms you can get. A good credit score is between 670 and 739. The higher your score, the lower your interest rate will usually be. If you need to raise your credit score, you can:
- Check your credit report for inaccuracies and dispute anything that's incorrect.
Pay down your credit cards. - Make timely payments on all lines of credit.
- Look at your monthly budget to determine how much you can afford to pay on a car loan. Remember that your car will also come with other expenses, such as fuel, maintenance, and insurance. Leave a reasonable buffer for other unexpected life expenses so your car payment doesn't leave you strapped.
Preparing for the Loan Process
You'll need a few basic documents to apply for a car loan. These include:
- Proof of identity: Driver's license, visa, or passport
- Proof of income: W-2 or pay stub
- Proof of residence: Lease, utility bill, or mortgage statement
You must also provide proof of insurance to purchase your used vehicle. However, this isn't necessary to get loan offers.
Choosing the Right Lender
You can get a preowned car loan from many different lenders, so it's worth comparing at least three different offers to ensure you've found the best one. Some places to explore include:
- Banks
- Credit unions
- Online lenders
- Dealerships
At Titus-Will Cars, we offer competitive on-site financing options through our dealerships in Olympia, Lakewood, and Tacoma, Washington. Contact us to learn how we can help you finance your vehicle.
Preapproval Process
Getting preapproved lets you know what you can afford to spend before you start shopping for a used car. This is smart because it'll keep you from falling in love with something outside your price range. Stick to the number you determined in your budget and find a loan offer that results in an appropriate monthly payment. Once you're preapproved, you can confidently enter price negotiations.
Crafting a Smart Down Payment Strategy
The larger your down payment, the smaller your used car loan. It's always wise to make your down payment as big as possible, so you'll have lower payments over the life of your loan, and you'll minimize what you pay in interest. Aim to put at least 20% down on your preowned vehicle, and try not to settle for less than 10%.
A bigger down payment also lowers the threat of going upside down on your loan. This happens when your car's value drops below the amount you still owe. Your insurance won't cover the full cost of the car if it's totaled while you're upside down in your loan, and you'll still owe money even if you no longer have the vehicle.
Navigating Loan Terms and Interest Rates
Car loans are usually for 24, 36, 48, 60, 72, or 84 months. In some rare cases, you may find a 12-month or 96-month loan. Go with the shortest loan term you can afford to ensure you pay off the vehicle while it's still running well. Shorter loans also result in lower overall interest costs.
Your interest rate is calculated annually. If you purchase a $15,000 used car with a 7% interest rate, you'll pay $1,674 in interest over 36 months. If you increase your loan to 60 months, your interest increases to $2,821 over the life of the loan. Remember this as you're selecting your car loan.
Find Your Next Used Vehicle at Titus-Will Cars Today
If you're in the market for a preowned vehicle, explore our inventory at Titus-Will Cars. We have a wide selection of gently used vehicles at competitive prices, making it easier than ever to upgrade your vehicle. Stop by any of our Washington locations or start your search online to discover a great new ride for you and your family.