Generally when you’re buying a used car you’re not thinking about loans, especially since the majority of used cars are sold via private sellers with cash. However getting a loan for a used car is certainly an option when buying from a dealership and it has done interesting benefits that we’re going to explain in this article.
Low Down Payments
The primary reason you’d want to consider paying for a used car with a loan instead of cash is that you don’t have to pay all of the money up front, meaning you won’t need to dip into your savings to buy the car.
There will still be an upfront cost via the down payment, however down payments for used car loans are significantly smaller than down payments on regular car loans, since the value of a used car is less than that of a new car, 20% of a used car price is significantly less than 20% of the same car new.
Better Car Options
Because used cars are cheaper than new cars you already get a much larger variety of cars to choose from with the equivalent budget and another benefit of getting a loan for a used car instead of a new one is that you can expand that choice even further.
By taking out a loan on a used car you’ll be able to afford a better used car than you could buy with cash.
Build Your Credit
If you’re looking for ways to build your credit then taking a loan you can comfortably pay off is a good way to do it. Auto loans are one of the key ways to build your credit as reliable payments will increase your credit much faster than other methods.
If you have low credit then you may get hit with an extra high interest rate, however to build your credit it may still be worthwhile in the long run, and it’s better to take that hit on a lower cost loan like a used car than on a big one you need later.
Downsides to Consider
There are a few downsides of getting a loan for a used car that shouldn’t go without a mention, the biggest being that because of the interest on a loan you will end up spending more money on the car than you would by just buying it outright, you’ll also have less negotiating power.
Dealerships much prefer getting cash in hand to long term repayment plans and as such if you want to finance a used car you may end up having to take whatever deal they offer you.
There’s also the matter of ownership, if you buy the car outright then it’s yours to do with as you please, however if you get a loan then you don’t have full ownership of the car until the loan is paid off.
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