Prior to the COVID pandemic, more than 50 percent of used car buyers financed a loan. Though that number has dipped over the past couple of years, financing is still a popular option for used car buyers. However, there are several factors that can complicate the used car-buying process. If you need help getting started, reach out to the finance department at Suburban Chevrolet in Eden Prairie before you get the ball rolling.
With a recession on the horizon, it’s wise to be careful with ready cash and liquid assets. Taking on debt for a used vehicle may not be your first choice, but it might be the smart option right now. If you do go the financing route, bear in mind the following points.
A used vehicle with high mileage can be a problem when it comes to your interest rate. For one thing, lenders often charge higher rates the more miles a vehicle shows on the odometer, so beware of buying an older vehicle in order to get a lower price. If your plan is to spread out payments as long as possible, remember that although used car buyers finance approximately $8,500 less for used vehicles than for new ones, it takes about the same number of months to pay off their loan.
If you opt for a seven-year loan (the maximum length many lenders will offer on a used car), getting a new vehicle before the loan terminates can be problematic. Don’t forget that your used car is apt to break down more quickly than new ones due to wear and tear driving the streets of Eden Prairie. A long-term loan could strap you with a lengthy commitment to a vehicle that may become undrivable.
Your used vehicle’s depreciation rate will affect its resale value as well as your interest rate. Depreciation rates are harder to predict for a used car than for a new car, so your resale value could, and likely will, be lower than for a new vehicle. Lenders tend to overcome this unpredictability by hiking interest rates, which increases your overall financial burden.
Many people choose to buy a used vehicle for reasons of personal finance, either because they have less to spend or because they have a low credit rating. If you have a poor credit rating, you may have to accept a higher interest rate (and a higher monthly payment) unless you have money for a big down payment.
Know your credit rating before entering into the car buying process and explore all available options. You can always pay down outstanding loans to improve your credit standing and document instances of responsible financial behavior for prospective lenders.
Financing a used car can be more problematic than taking out a loan for a new car. If you live in Minnetonka or Hopkins, pay a visit to Suburban Chevrolet and check out our used car inventory. Take a test drive, and let our experienced sales consultants answer any questions you might have. And don’t forget our certified pre-owned vehicles. Call us today!
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