News & Tips

Buying a used car offers a variety of benefits from saving more money to stressing less about depreciation. Nowadays, you can get a detailed history of the used car, so you have a better idea of what you’re buying. Plus, more information is available online about the reliability of a car’s make and model. While some may find used car financing to be daunting, more and more lenders make it easier than ever. Once you’ve decided to purchase a used car, here are seven steps you can take to streamline the process and help you get the best deal.

#1 Check Your Credit Reports

Lenders look at your credit scores when determining whether or not to approve your used car loan and when deciding the terms to offer you, including used car loan rates. That’s because a credit score helps them to assess how risky it would be to give you a loan — and, the higher your credit scores, the more likely it is that you’ll get the best auto loan rates available. 

There are three main credit bureaus that maintain credit reports. Usually, you can get a free copy from each one of them annually. Currently, because of COVID, they’re offering them weekly — meaning, for free. The only place that the federal government authorizes to offer this service is AnnualCreditReport.com. After you receive yours, check for and correct any errors. These reports are what credit score algorithms use to generate the scores that lenders use to assess risk and make loan approval decisions. 

If your credit scores aren’t as high as you’d like, you may decide to work on boosting them before applying for a used car loan. Ways to do that include making all of your payments on time, getting credit card balances to where they’re less than 30% of your total available credit; and not applying for other loans in the interim.

#2 Get Pre-Approved for a Used Car Loan

A pre-approval allows you to have a better idea of what your budget is before buying a vehicle, what loan programs you can use, and what your interest rate may be. The lender can determine all of this based on your financial information and credit scores. 

This is different from pre-qualification. How? With pre-qualification for a used auto loan, you may gain some useful information about what you can afford and what your potential interest rate and payment could be. But, because this process is simpler and doesn’t involve as much verification by the lender, it provides less certainty for the seller that you’ll be able to secure funding for a vehicle. Pre-qualifying, in essence, is the step before pre-approval.

Here’s another key difference between the two. With pre-qualification, a lender will typically do a “soft” credit pull if they do one at all. A credit check of this type has no impact on your credit scores. However, when getting pre-approved, a “hard” credit check will likely be conducted with at least one credit bureau to get your score and report. This type of check is tracked by credit bureaus, and if you have a high number of these, there is a possibility that your score will be temporarily lower. 

SCCU makes getting pre-approved convenient. You can apply online, call 800-447-7228, or stop by your local branch office. Then, you can shop with confidence!

#3 Shop for Used Cars in Depth

Maybe you already know what kind of vehicle you want. If so, visit dealerships that sell this kind of car, and when you find one that interests you, consider the vehicle’s condition, listed price, features, and mileage. 

Inspection

Consumer Reports offers detailed guidance on how to inspect a used car, noting how the Federal Trade Commission (FTC) requires dealers to post a detailed guide (usually done via a window sticker) about the vehicle. This includes whether the car will come with a warranty or is sold “as is” and what percentage of repair costs the dealer must pay. 

Carefully inspect the exterior and interior of the vehicle; if you’re serious about buying the car and don’t have mechanical expertise, it's a good idea to have a mechanic inspect it before you agree to purchase, including under the vehicle and under the hood. You can typically have this done for $100 to $150. 

Used Luxury Cars: In today’s world, many pre-owned cars are in excellent shape with low miles, especially in the luxury market. Many cars in this luxury class can be purchased as a certified car, which extends the new car warranty after a thorough inspection by the mechanic at the dealership. Any issues are repaired before the car can be sold as a certified unit. As a certified car, you can then purchase an extended warranty that continues the warranty past the certification time to meet your driving habits. You will pay extra for the warranty and certification; however, this is highly recommended in the luxury market. This should save you money in the long run if you intend to keep the car for more than a few years. Best of all, it will give you peace of mind.

Test Drive

Take the vehicle for a test drive and leverage info found at places like Carfax and AutoCheck to verify information provided to you by the seller. The biggest question is does this car feel comfortable and react as you anticipated after the test drive? Do not purchase a car that you do not feel comfortable driving. Not all cars feel or drive the same and what feels right for you may not feel right for someone else. That is why there are so many different styles of cars.

Used ar Price Negotiation

Having information from a qualified mechanic can help when you negotiate the price of your vehicle. To provide some context, in the summer of 2020, the average used car cost was $21,558, according to J.D. Power — although, clearly, prices can range significantly based on the vehicle of interest.

#4 Compare Lenders and Used Car Loan Rates

Although dealerships typically offer convenient financing, they don’t necessarily offer the best auto loan rates. Items to look for when deciding where to get financing include:

• Low interest rates for car loans
• Low fees charged
• Good auto loan terms available
• Reasonable down payment required

By law, lenders must provide you with an annual percentage rate (APR), which factors in the interest rate, the fees, and interest that accumulates before the first payment is due. Because all lenders need to use the same formula for an APR, this gives you an apples-to-apples comparison. If the interest rate and APR are numerically close, this indicates low fees. Larger difference? Higher fees. Also, check to ensure that something about the vehicle (perhaps its age) won’t disqualify you from the financial institution’s used car loans.