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Financing a Used Car Purchase

By: Scott McBride - Updated: 1 Jul 2012 | comments*Discuss
 
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For most people, buying a car comes second only to buying a house in terms of the size of the investment. In the same way you would shop around for a mortgage when buying a house, you should shop around for the best possible finance deal when buying a used car. The finance options are plentiful, but the answers to these frequently asked questions can offer some guidance.

Question: Should I get a bank loan to buy a used car or accept the finance deal offered by the car dealership?

Answer: That depends on the offer made by the car dealership. Do not take it for granted that the car dealer is offering the best interest rate – the chances are he is not. It is easy to be sucked in by zero or low percentage deals, but remember that the real cost of borrowing depends on the annual percentage rate (APR). Compare the dealer’s offer with those available from high street banks and online lenders, as these may turn out to be cheaper or more convenient.

Question: How do I find the best loan deal available to fund the purchase of a used car?

Answer: You have to shop around. There is no point spending time and energy finding the best used car at the right price and then signing up to the first loan deal offered. Get on the internet, where there are hundreds of deals available – many of them cheaper than high street banks. It’s easier to trail through websites in the comfort of your own home than to trudge up the high street going from bank to bank.

Question: How can I make it easier to understand loan deals when lenders use financial jargon?

Answer: Always ask for the APR, as this is the real cost of borrowing. If you are baffled by the language used by the lender, ask him to explain it in simple terms. Any good lender should be able to get the salient points across in a way a layman can understand. Do not be afraid to ask plenty of questions and make sure you know what all the small print means.

Question: Do I need payment protection insurance with my loan?

Answer: Many lenders will be keen to highlight the benefits of payment protection insurance, but this can bump up the cost of the loan considerably. Of course, payment protection insurance can be of interest to some borrowers. Ask to see repayment plans with and without payment protection insurance and any other extras and reach a decision based on these.

Question: Can I buy a used car with a credit card?

Answer: The average man in the street does not have the means to accept credit card payments, but it may be possible to buy a used car from a dealer using a credit card. Most reputable dealers will be able to accept credit cards but some may charge for the privilege.

Be aware that the APR can be high on a credit card when compared to a bank loan. However, in certain circumstances it can be advantageous to use a credit card. For instance, a lot of credit card companies offer incentives to attract new customers. This can sometimes be six or even 12 months of interest free credit. Those with the means to pay off a car in such a short space of time could save a considerable amount in interest payments.

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