If you are in the market for a used car, financing can be a great option to help you afford the vehicle you need. We have compiled this guide to help you understand the basics of financing a used car. From the basics to the documents required, we will cover everything you need to know to make an informed decision. Whether you are a first-time car buyer or just looking to upgrade your current vehicle, this guide will help you confidently navigate the world of used car financing. So, let’s get started!
The Basics
First, let’s review the basics of financing a used car. Financing a car means borrowing money from a lender to pay for the car and then paying back the loan with interest over time. This might be:
- A personal loan from a bank
- A specialised car loan from a finance company or non-bank lender.
- A loan direct from a dealership
- A peer-to-peer loan
When financing a used car, a few factors can affect the terms of your loan. These include
- the age and mileage of the car,
- your credit score and credit history, and
- the amount of your down payment.
Security
One important consideration when financing a used car is the security you must provide for the loan. Depending on policies and the lender’s financial circumstances, you may have the option of an unsecured car loan or a secured car loan.
With a secured car loan, you pledge an asset as collateral, typically the vehicle you purchase. The security provides the lender with a form of collateral. If you default on the loan, they are legally entitled to seize and sell the asset to recover their losses.
On the other hand, an unsecured car loan doesn’t require any security. This means you can sell, give away or modify the vehicle. Unsecured car loans tend to come with borrowing limits and higher interest rates. Sometimes, lenders may require a secured car loan as the only option.
