Buying a used car can be much more affordable than a new one. Nonetheless, the average price of a used car can still be very high. Plus, what’s affordable to someone else may not be for you. That’s where used car loans come into play.
Used cars loan can help you purchase a car even if you can’t pay it outright. The question is, should you get a loan for a used car?
Can You Get A Loan To Finance A Used Car?
According to recent studies, the average price for a used car in Canada is over $30,000. That’s a lot of money for most people to spend with cash or plastic.
Thankfully, whether you purchase a car from a used car dealership or a private seller, there are ways to finance the car. Many used car dealerships offer in-house financing programs to make cars more affordable.
Similarly, there are bank, credit unions and alternative lenders who offers loans for used cars. You can also get car loans from these lenders for private sales.
Should You Get A Used Car Loan?
There are many reasons you may want to get used car loans to finance a car. Some of the main reasons that you should consider financing a used car include:
Low Monthly Payments
Instead of paying 20 or 30 thousand dollars upfront, you can pay a small monthly payment instead. With used car loans, terms can range between 3 years to 9 years depending on their value and your financial health.
Low Borrowing Amount
Unlike new cars, used cars are cheaper. That means you can often buy one with a much lower down payment than a new car. The down payment you make can reduce the amount you need to borrow, which can further lower your monthly payments.
Most dealers will accept around 10% – 20% of the car’s value or even 0% in some cases.
You Can Afford A Nicer Car
Unlike paying in cash, financing can help you afford a better car by spreading its cost out over multiple payments. This way, you can potentially buy a model that’s a few years newer, with nicer features and lower mileage, rather than settling for a rust bucket or worse, a total lemon.
Affordable Rates
While interest rates on used cars can be more expensive, it can be a more affordable option than paying the entire amount upfront. Plus, you can always negotiate a lower rate by improving your finances and credit score.
Moreover, you can often finance the sales tax which can cost thousands of dollars depending on the value of the car.
Easy To Qualify
Even if you have bad credit, there are numerous lenders who may still give you a loan. This is because used car loans are secured against the car. This provides the lender security since the lender can just repossess the vehicle if you default.
Can I Get A Loan To Finance A Used Car With Bad Credit?
It depends on where you apply but yes, you can often finance a used car with bad credit. While banks and credit unions may deny your applications if your credit score is around 600 or below, there are plenty of private lenders and online dealerships like Clutch that offer used car loans to those with different credit backgrounds.
What Do You Need To Qualify For Used Car Loans With Bad Credit?
To qualify for a bad credit car loan with one of those alternative sources, you’ll typically need a steady source of income that’s high enough to cover your upcoming payments. Just keep in mind that since bad credit can mean you have more chance of defaulting, you may pay higher interest rates of about 7.83% – 29.99% to get a loan for a used car.
Types Of Used Car Loans
When buying a car, new or used, make sure to research and compare rates from multiple sources of financing. This is because there are at least three different types of car loans you can get to finance a used car in Canada, including the ones below.
Dealership Financing
Many auto dealers offer their own in-house financing programs with special incentives ( 0% financing for a limited time), bad credit approval, and loan terms of around 3 to 7 years:
- In-Person Financing – Going straight to the dealership can be a good idea if you prefer to look around and test-drive cars. This way, you may be able to negotiate a better price and rate. Plus, it’s convenient because the dealer can complete any paperwork right there and you could drive off in your used car the same day.
- Online Financing – Some dealerships offer financing on their website too, which can be even more convenient. While you can’t negotiate online, it’s easier to browse car and loan options without salespeople pressuring you. Many websites also offer a free pre-approval tool to show you what kinds of deals you can get.
Used Car Loan From Banks Or Credit Unions
If your credit is good enough to qualify you for a decent term and interest rate. Getting a used car loan from your bank or credit union can be a great option. Financial institutions tend to offer better rates, longer terms, and more payment flexibility than dealerships or alternative lenders. Especially to pre-existing customers with healthy account balances.
However, they’re less open to negotiation or accepting clients who have bad credit or lower incomes. You need to be a strong applicant to qualify for a reasonable loan. The application and approval process can also take longer than with dealership financing.
Used Car Loan From Alternative Lenders
If you can’t qualify with a dealership or financial institution, you can apply with a private lender. Alternative lenders are often based online and have easier approval standards. They usually accept bad credit and low incomes. Basically, as long as you can afford your payments, you can qualify for competitive loan conditions and speedy approval.
The biggest problem with alternative lenders is that their used car loans can come with higher rates and fees, especially if you have bad credit. It’s important to watch out for scams and predatory rates when choosing a lender, getting pre-approved, or signing contracts.
| Amount | Interest | Term (Months) | ||
|---|---|---|---|---|
 | $500 - $50,000 | Up to 46.96% | 12 - 84 | Learn more |
 | Varies | 8.49% + | 24 - 96 | Learn more |
 | $500 - $35,000 | 29.99% - 46.96% | 9 - 60 | Learn more |
 | $500 - $10,000 | 12.99% - 39.99% | 9 - 36 | Learn more |
 | $5,000 - $40,000 | Varies | 12 - 72 | Learn more |
 | $5,000 - $45,000 | 4.90 % - 29.95% | 36 - 72 | Learn more |
 | Varies | 11.9% + | 12 - 84 | Learn more |
 | Up to $50,000 | Varies | 12 - 84 | Learn more |
Other Loans That Can Help You Finance A Used Car
If you’re having trouble finding a traditional way of financing a used car, there may be other loan options that can give you enough cash to buy a vehicle upfront, such as:
- Home Equity Loan – If you have at least 20% equity in your home, you can use it as collateral to take out a home equity loan. Home equity loans are secured and therefore can be a more affordable option than personal loans. Technically, you can use the money for whatever you want, even purchasing a new vehicle. Keep in mind that you are putting your house at risk. If you can’t afford to take on the debt, you shouldn’t.
- Personal Loan – An unsecured personal loan can be a safer option because you won’t have to risk any collateral. This way, you can borrow a lump sum of cash to purchase a used car, then repay the lender over time. However, since there’s no security for the lender, you may have to pay higher rates and fees.
Looking For A More Affordable Way To Buy A Vehicle?
When it comes to purchasing a vehicle, choosing a used model is a great way to stick to your budget. But, what about financing? Most dealerships, lenders, and banks offered loan options for used cars. All you need to do is find the right option for your needs. Which Loans Canada can help with by matching your multiple offers based on one easy application.
