How to Get a Used Car Loan

Can You Get a Car Loan for a Used Car?

It's possible to finance a used car. However, there may be fewer loan options than for new cars, and interest rates on used car loans are generally higher. Some lenders won't finance used cars over a certain age or mileage limit, however, so financing a classic car or one with tons of miles may not be an option. You may also choose to finance a used car if you can't afford to pay cash for the vehicle you want.

Where to Get a Used Car Loan

When looking for a used car loan, financing options include banks, credit unions, auto dealerships and online lenders.

Banks and Credit Unions

Credit unions and banks are the most common sources of used car loans, according to Experian's most recent State of the Automotive Finance Market. Because they're not-for-profit cooperatives, credit unions often offer lower interest rates than banks or auto dealers do. You'll need to be a member of the credit union to apply for a used car loan. Joining typically involves opening and funding an account, but there may be other requirements too.

Auto Dealers

Auto dealerships that sell used cars typically offer financing, which may be:

• Dealer-arranged financing: The dealer submits your loan application to several lenders to shop for the best rate. Dealership finance departments may increase that rate a bit to make some profit on the loan.
• Captive financing: The car manufacturer's own financing company may offer loans on certified pre-owned vehicles.
• Buy here, pay here financing: Some dealerships offer in-house buy here, pay here financing designed for customers with poor credit or limited credit histories. It's typically easy to get approved for these loans even if you've been turned down elsewhere. However, these loans generally come with extremely high interest rates and fees and require larger down payments than traditional auto dealers.

Online Lenders

Online lenders work like banks and credit unions, but the loan application process takes place entirely online. You can find online lenders that specialize in auto loans or in lending to people with poor to fair credit. Getting prequalified or approved and receiving your funds is usually faster than at traditional lenders; however, online lenders may charge higher interest rates.

How to Apply for a Used Car Loan

To apply for a used car loan, follow these steps.

1. Check your credit score. It's free to check your credit report and FICO^® Score^☉ with Experian. For credit scoring models (such as FICO) that use a 300 to 850 range, a score of 670 or above is considered good. A fair or poor credit score won't necessarily keep you from getting a loan, but improving your credit could help you land a lower-interest loan. Catching up on late payments, paying bills on time and reducing your credit card balances can all help increase your credit score.
2. Determine your budget. Check average used car prices at dealer websites or auto-industry sites like Kelley Blue Book and Edmunds to determine a price range for the used car you want. Aim to make a down payment of at least 10%—preferably more: The bigger your down payment, the less you'll need to borrow. Review your budget (or make one) and figure out the monthly car payment you can afford.
3. Research lenders and get preapproved. Shop around for used car loans by getting preapproval from three to five lenders. Submit all your applications within a 14-day period and credit scoring models typically combine them into one hard inquiry, minimizing any negative impact on your credit score. Preapproval will give you a ballpark idea of the loan amount, interest rate and terms available to you.
4. Compare loan offers. When weighing loan offers, compare the annual percentage rate (APR), which includes interest and fees to show you the total cost of borrowing. You can use Experian's car payment calculator to estimate how different loan amounts and terms affect your monthly payment and the total amount of interest each loan will cost. A shorter loan term often means a lower interest rate, although it will increase your monthly payment.
5. Apply for your best offer. Preapproval isn't the same as final loan approval, so you'll need to complete an official loan application to finance your car.

Frequently Asked Questions

The Bottom Line

Used car loans typically cost more in interest than new car loans, but a good credit score can help you qualify for better interest rates, lowering your loan costs. Consider signing up for Experian Boost^®ø, a free feature that gives you credit for making on-time utility, rent, phone, insurance and streaming service payments. Because payment history is the single biggest factor in your credit score, paying these and other bills on time can help pave the way to the used (but new-to-you) car of your dreams.