How to Finance a Used Car

A common misconception that first-time buyers have is that you can only purchase a used car with cash. However, it is possible to finance one. This is good news, especially in today’s economy, where buyers who can put down thousands of dollars to purchase a car outright are far and few between. Financing can also help you improve your credit score.

But is it a good idea? It should come as no surprise that financing is going to subject you to interest and additional fees that might end up costing you more than the total value of the car. However, this is largely down to your due diligence. If you don’t shop around, you run the risk of paying higher interest rates and down payments on shorter terms.

So, what can you do to ensure that you’re financing your used car in the safest and most affordable way possible? Read on to find out.

Start with Your Credit Score

Before you look into your financing options, you should take a moment to ensure that your chances of being approved in the first place are as high as possible. Pull your credit report and determine whether it’s accurate.

If you find any errors, contact the agency reporting the error to get it rectified. You should also contact the credit bureau. This will ensure that any delinquent information gets fixed. Try to avoid applying for financing when you still have late payments. The less outstanding debt you have, the more likely you are to get approved.

Determine What You Can Afford

Take a look at your budget. How much room do you realistically have to pay for a car? Ideally, it shouldn’t exceed 10 percent of your net income. This way, you’ll have more room for insurance, fuel, maintenance and other related expenses. You can use a car affordability calculator to make this easier.

Avoid the Dealership

While convenient, you shouldn’t go straight to the dealership, as this will most likely be the most expensive route. Used car financing services are often a much more affordable option. They’re also more lenient when it comes to buyers with low credit scores. Be sure to take a good look at their rates, as these can vary from lender to lender.

Avoid making the mistake of assuming the lowest payment is the best option. The term often hides the true cost of the total payment. Shorter terms will mean higher payments, but lower interest rates. Once you have a suitable deal, get it in writing and take it to the showroom. This will serve as a valuable part of your negotiation tools.


Even if you’ve found a great financing deal, you should still try to negotiate the price of the car. Remember, the dealer will want you to take their financing instead, as they make a profit from financing deals. By not taking their deal, you leave them with two options – take the cash deal or beat the offer.

Finally, don’t feel pressured to buy the car if you can’t get it at the price you want. Chances are that there’s another car with your name on it around the corner.