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The used car market is a treasure trove for car buyers, especially once the shopper sees the price of new cars. But in addition to lower prices, the used market is chock full of lease return cars, often in excellent condition after being on the road for only a few years.

But once the shopping begins, buyers quickly realize it costs more to finance a used car than a new car. What’s the reason for this and what are some ways around it? We’ll begin by providing some insight in how new car financing works. But since you want to save money and buy used, we’ll show you 4 ways to help finance the used car you found and look like a financial genius.

Let’s begin with new car financing. Often times, new car loans are subsidized by vehicle manufacturers. In some ways, this provides an incentive to dealers to move the slower selling cars.  A slow selling model usually means the buyer has the advantage. But in this case, the manufacturer is taking on some of the responsibility of developing a sales dud. Simply put, the buying public is ‘neutral’ about some new cars and requires a little financial prodding. Which leads us to the reasons why used car financing costs more.

Even though Kelley Blue Book provides some great insight into used car values, banks don’t have a clear picture of the condition of a used car. Without that critical information, banks just don’t have the details to justify a low interest loan. It would be too costly and time consuming to send an appraiser out to every used car they are being asked to finance. Lenders simply won’t take anyone’s word for it that a used car is in excellent condition, thus the cost of the loan goes up.

Unfortunately, used car buyers have a long standing reputation with lenders. The shame bestowed upon these buyers is that they don’t take care of their cars. For whatever reason, owners of used cars are more likely to skip repairs and park the car outside. Again, it all comes back to the value of the car. Poor maintenance and unlit urban parking equals higher risk to the bank, which means there’s no incentive to offer low financing.

And probably the worst of all, banks have found used car buyers are more likely to skip payments or not repay the loan at all.

Please, don’t be one of those car buyers. If you refuse to accept the characteristics and bad decisions of others and want to know how to be a financial genius with used car loans, then read on.

The first step is to check out potential lenders first. There’s nothing wrong with doing some comparison shopping. Check with your local banks, online banks and credit unions. Having your financing lined up beforehand helps you stick to a budget but also gives you a fallback in case the dealer can’t do better.

Second, look for a newer used car or the expanding market of certified used cars. Certified vehicles have passed a multiple point inspection by the dealer and are considered a notch or two below new. Many lenders will give you a break and not hike your interest rate on cars such as these. To the bank, these are more akin to new cars since the value of the car is easier to determine. Dealers always list what cars are certified but if you can’t find any, just ask. And take it upon yourself to check a car’s history. An unresolved recall repair or questionable odometer reading are clear signals to steer clear.

Third, know your credit history. Take advantage of free credit reports available from credit reporting agencies and deal with any problems or inconsistencies you find. Improving your credit score will get you better interest rates and lower payments.

And lastly, prepare to put some skin in the game. A larger down payment can help you get a lower interest rate. Obviously, it means your financing less which looks good to the bank but in addition, gets you a lower monthly payment.

With some simple research and your new found financial smarts, buying a used car just got much easier. And you thought you weren’t a genius.


Free Vin Lookup

Vin Lookup

The Vehicle Identification Number is located in many different places on a car. It is very common to appear on the dashboard and/or in the drivers side door sticker. You can do a free VIN look up to check vehicle problems on the button above.