Can you finance a used car?

Used cars may be a great option if you're looking to get on the road and potentially spend a little less on a vehicle. If you’re not able to purchase the car with cash, you may be wondering, “Can you finance a used car?”. The short answer is yes, you can. While financing a used car follows a similar roadmap to financing a new car, there are some key differences that may be helpful to know about before you apply. So, before you begin your used car journey, let’s learn how to finance a used car and potentially make the process a little smoother.

How to finance a used car

You can apply for a used car loan through a few different sources. While they all serve a similar purpose, there are differences between them, so be thinking about what’s right for you.

Dealership financing

You may opt to finance a used car through a dealership, which has the benefit of being a one-stop-shop to shop for, purchase, and finance your vehicle all at once. Dealerships typically work with their own network of banks and credit unions that provide financing services for the dealership, which is convenient, but may not expose you to every possible option.

If you're concerned that a low credit score may affect your odds of being approved for a used car loan, you may want to take advantage of Credit Journey^®, a free tool available to everyone that can help you track and monitor your credit score and learn how to build it without impacting your credit.

Bank and credit union financing

You may opt to cut out the middleman and finance your used car loan directly through a bank or credit union. This may be a great choice as they could potentially offer competitive rates and terms that are more appealing than a dealer’s offer.

Online lenders

Just like buying a car online, one benefit to using online lenders to finance a used car is the convenience they offer. You can typically research the various financing options that may be available to you to determine what will work best for your individual situation and budget, and do it all online. Then you can apply online and receive a credit decision without ever leaving home.

Used car financing vs. new car financing

When deciding between purchasing a used or new car, it may be worth noting that used car financing has some differences to consider. With both financing options, lenders will use the same financial information, like your credit score, to determine your financing rates. Used car financing may come with a few more restrictions such as the age of the vehicle, the number of miles on the odometer, and even the type of vehicle.

Loan terms

The loan repayment term may be shorter with used car loans. This is because lenders need to align the repayment period with the remaining life of a used car with the objective of having the loan paid back in full before significant repairs are needed, or the car stops running altogether.

Interest rates

Used car financing may come with higher interest rates than new cars, partially due to the increased risk lenders take on when financing used vehicles, like potential mechanical issues from wear and tear that may make borrowers less likely to make their payments, and ultimately pay off their loans.

Buying from a private seller

If you have a particular vehicle or price point in mind that you’re struggling to find at a dealership, you may opt to buy from a private seller instead. However, a private seller generally won’t offer financing, so you may need to pay cash or take out a personal loan. You may also be able to obtain a private-party auto loan to fund your purchase.

Financing a used car: Next steps

Your preparations for financing a used car start with effective research. First, you may want to look closely at your monthly budget to see if you can afford to take on this debt. Remember, “can you get a loan for a used car” and “can you afford a loan for a used car” are very different questions. Using a car loan payment calculator may go a long way toward understanding what kind of monthly car payment you can comfortably make.

After you’ve determined your budget, there are things to check when buying a used car, like a vehicle history report, to potentially avoid a costly mistake like buying a used car with major accident or flood damage. Once you know your budget and feel comfortable vetting your potential used vehicle options, there are things you can do to improve your chances of securing financing.

See if you can be prequalified

Some lenders can provide you with an estimate of the amount of financing you may prequalify for. To determine if you prequalify, lenders will typically look at your basic financial profile to determine your offers. This is a good way to see how different payment amounts fit within your budget, and which lenders may offer terms that work for you. Remember that prequalification doesn’t mean your used car financing has been approved — you'll still need to formally apply with your lender.

Monitor your credit score

Before you apply to finance a used car, you may benefit from taking time to review your credit score and credit report. Lenders view credit scores as a reflection of your creditworthiness, so your score will likely have an impact on being approved, and the terms you’re offered. If you have the time, taking steps to increase your credit score before applying may help improve the likelihood of being approved, and the rates you receive.

Prepare to make a down payment

If your finances can accommodate it, there are some considerable benefits to placing a sizable down payment on your car. The more money you pay upfront, the less you’ll need to borrow, possibly resulting in lower monthly payments and lower interest rates.

Estimate your trade-in value

If you’re financing a used car, you may be able to trade in a current vehicle and deduct its value from the amount you have to finance. It might be smart to have your car appraised to understand its value, or check its value online using services like MyCar or KBB. Once you know your trade-in value, you can use that knowledge to negotiate offers more effectively.

In summary

If you were wondering if you can finance a used vehicle, the answer is yes — with potentially a little extra footwork. Now that you understand your used car financing options and the steps to prepare for a potential used auto loan, shift into “drive” and get started.