subject: How can I get financing for a used car? [print this page] A lot of people can afford to buy cars because of the availability of financing. As a matter of fact, a vast majority of all brand new cars purchased in Canada were initially under some form of financing plan. However, this begs the question,"How about used or second hand cars?"
People are often led into thinking that used or second hand cars are not eligible for financing. This often forces them to delay their purchase until they have saved enough to buy a unit with cold cash. However, many lending institutions actually offer financing options for used motor vehicles.
Aside from going to the nearest bank or credit union, a person who is interested in getting a used car loan may also apply for one online. Basically, the prospective applicant would just have to fill out a standard form, and he or she will be pre-qualified. However, should an application actually pre-qualify, the lending institution may still contact the applicant directly, as part of the company's security protocol.
Now that it's settled, let us talk about some important concepts behind used car loans. Here are the top three myths about used car financing, along with explanations on why they are wrong.
Myth No. 1: It's a tad too difficult to get approved.
Applying for a used car loan is just the same as applying for a brand new car. Actually, the only difference is that one is for used cars and other is not. The requirements for application are virtually the same -- bits of personal information, work related status, contact information and income data.
The approval of a used car loan application relies more on a person's credit history than on the vehicle itself. Thus, difficulty with getting approved happens only when one's creditworthiness is questionable. Otherwise, approval should be a breeze.
Myth No. 2: The Interest rates are simply too high.
This is another common misconception about used car loans. Many people believe that the interest rate (APR) that is associated with used car loans are prohibitively expensive. However, this is one wrong notion that must be shattered once and for all.
Generally, interest rates for used car loans are slightly higher than those for brand new cars. This miniscule difference is used to account for a greater risk for defaulting, which is brought about by a car that may potentially give up on its life soon. However, this difference usually amounts to less than one percent. For people with stellar credit scores, the difference can be as low as 0.2 percent something that is virtually negligible.
Myth No. 3: Amortization periods are too short for comfort.
"Too short" is probably an overstatement. Amortization periods for car loans are affected by two factors: the age of the car and the interest rate.
There are some auto loan packages that determine a car's amortization period by a base value minus the car's age in years. For example, a 5-year (60-month) car loan may have the payment period cut down to 3 years (36 months) if the car that was bought is two years old. This is to make sure that the collateral (the car) will still have value, which is the rationale behind securing loans.
On the other hand, an increase in interest rate may also be applied so that a used car loan may be paid over a longer period. The increased interest rate will be used to offset the effects of depreciation on the car's value. However, this option is given primarily to people who have stellar credit something that may be immensely difficult to achieve.
