If you've ever purchased a brand new car, you know how the routine goes. You walk in, a salesman hits you up, you test drive and then comes the hard sell and the financing. It's pretty clear right off the bat how they prefer you to get cash to pay for your brand new car but, what about when you decide to buy a used car and let someone else take the big depreciation hit? What about when you buy through a private party?
It turns out that financing a used car is just as simple--and a lot less painful than buying a brand new car. Typically when you walk into a new car dealership they push their in-house financing. You'll fill out some paperwork, they'll run a credit check and tell you what your "real" purchase price will be--really what the total cost of the loan will be. At a typical brick-and-mortar used car dealer the process is the same. If you're intrepid (and don't mind jumping through a LOT of hoops), you can choose to finance outside the dealership and work with a bank of your choice to get a better rate or even a better residual-the price that banks estimate your brand new car is actually worth-if you are leasing.
The process for buying a used car through a private party is similar to purchasing a new car-- if you were to use a bank other than the one pushed by the dealer. We've broken it down into 5 simple steps for you, below.
Once you've targeted the car you want start thinking about how much you want to pay. Start looking at your finances and doing some preliminary research online with lenders and rates. If you find a specific car you want, talk to the seller and see if they'd be willing to drop the price further. Once you've figured out a price, you're ready to start thinking about financing.
If you have some cash saved to put toward the purchase of your new-used car, subtract that amount from the total loan. Next, do some legwork online at a place like Bankrate.com to figure out what the total cost of the loan will be. Things to consider are the life of the loan (the term) and the interest rates. Most car loans today run anywhere between 4.13% and 5.13% interest and changed based on the life of the loan (36, 48 and 60 month terms). The other factor to consider is your credit score. The better your score the better your financing terms can be.
Getting a loan for a private sale of a car can be pricey--but remember, because you are buying used and privately you are save a ton of money on the purchase price. The best places to look for great rates are local credit unions and banks. Because credit unions are technically owned by their members, they offer better rates than other big big banks. They generally offer discounts if you are already a member or if you are a student, too. Check out local banks as well as they offer competitive rates, too. Just recently, Instamotor launched its own financing in conjunction with Autopay. You can check out rates, here.
Once you've chosen the right bank and loan for you, pull all your paperwork together. Bank requirements vary, but some of the basics you'll need include, the make, model and year of the car you are purchasing, the Vehicle Identification Number of the specific vehicle you're purchasing, and a few pay stubs to prove your income. The bank will run your credit so be prepared to provide them with your Social Security number when they ask.
Once you've been approved the lender will give you the check for the amount of the loan, that you will then give to the private seller, and they should give you the Title in return. You'll need to have some paperwork done at the DMV to finalize everything but you should be good to go!
Digital media content producer/consultant & former CNN senior producer, now running CN'TRL : Cars, Tech, Real Estate & Luxury.