Pre-owned car can turn out to be an incredible choice, when you are planning to buy a car. This allows you grab a great deal, as you are not purchasing a brand new one, thus improving the scope for negotiation. Now, when you don't have the funds to buy the car then used car finance solutions can turn out to be a lifesaver. But, what exactly are these loans and how are they different from any other form of finance option?
A Complete Guide to Used Car Finance
Loan for used car is a financing solution that allows you to buy pre-owned cars, yet financial institutions and lenders have certain restrictions in terms of the age of the car and the overall loan amount that you qualify for. For instance, there are certain institutions that provide used car loans only for those vehicles that are not old than five years. It should be noted that the average interest rate taken on these types of loans are higher compared to new cars, as in such case the quality of car is always assured.
These loans are a form of secured way of getting the funds that you need in order to have your own car. But, as they are secured, there are specific details that you have to provide while applying for them. The lender might offer a pre-approval, helping you have a secured finance solution even before you have shortlisted the car. Once approved, the burrower can repay the amount within a designated term period, also known as the loan term.
The loan term for used car finance can be anything from a year to as long as seven years, or five in case of fixed rates. Lenders do provide an opportunity for additional payments, so that you are able to repay the loan faster without any sort of penalties.
How to Find the Best Used Car Finance Solution?
Understanding which financing option the best would be is important and for this, there are three aspects to look after:
- Interest Rates: The interest rates at which lenders are willing to offer the finance is something that you should consider at first. Compare the potential options that you come across and then choose the one that delivers competitive pricing and a well-packaged loan.
- Fees: Like any other form of a loan, even for used car finance the lenders may charge a certain percentage of fees namely administration fees, termination fees, finance management fees and many more. Consider each one of them and review the fees in detail to identify a good deal.
- Flexibility: If flexibility in the tenure of the loan is what you need then look for the same in the lender. Are you planning to repay the entire loan quite early to avoid penalties? Do you want the loan term to be as long as possible? If the funds are given, do you want to practice the redraw facility? The answer to these questions will help you understand which one is suitable in accordance with your requirements.
What Are the Different Types of Used Car Finance?
There are a diverse range of used car finance options available and some of them are:
- Secured Finance: In case of this finance, you have to provide an underlying asset like the car to the lender. A major advantage of such loans is that the interest rates are comparatively lower than other forms of loan.
- Equity Finance: If the equity of your home loan is high then lenders would enable you to gain access to that equity and the same funds can be utilized for purchasing a used car.
- Dealership Finance: While shopping for cars you are going to come across many dealership finance solutions. These feature low interest rates and provide repayment term based on the preferences that you have.