If you are looking to buy a new car for you or your family, you should take a look at pre-owned vehicles as well. Many of these cars have been used for around 50,000 miles and are being sold by their owners or by a used cars dealer. Most of the people selling these cars want to buy a newer model. Truth be told, many of these used cars are in mint condition. And considering the fact you can get them for 50% of the original price, they can be an excellent deal.
But what can you do if you are less affluent and can’t afford to pay for the car? Of course, the used cars dealer will offer you some financing options. They’re exactly what you need, it seems. But are these financing options really what they seem?
Should You Buy or Should You Lease?
The way you can pay for the car depends on whether the vehicle is CPO or not. In case of Certified Pre-Owned vehicles, you can apply for a leasing contract. Keep in mind that CPO cars are less than 4 years old and have up to 48,000 miles on the clock. They are more expensive than the regular pre-owned vehicle, but they do come with a very useful warranty (up to 24 months). Leasing is not a bad option, if you are willing to pay the higher price for a CPO car.
If the vehicle you find is not certified, the used cars dealer will offer you a financing option. However, don’t expect the terms to be similar to those you can get when buying a new car. When you buy a new car, you usually pay 1-2 percent interest (some loans even come with a 0 interest rate). When you need to finance a second hand car, on the other hand, you will be offered a loan with 6 to 8 percent interest. This is huge.
You can end up paying thousands of dollars in interest over the years. In other words, you are losing all the money you’ve saved by choosing to buy a pre-owned vehicle. And financing comes with other costs as well.
Financing Means Even More Costs
Then you take a loan for a used car, you need to have comprehensive insurance coverage for the vehicle. Why? Because until you repay the loan, the car is not yours; it’s the property of the dealer.
And of course, the dealer wants to make sure that the vehicle is protected against all kinds of damages, including total loss.
Comprehensive insurance is expensive. It’s even more expensive for luxury vehicles. These are costs that you need to add to the interest you are already paying. Costs quickly add up, so be very careful with the math.
The Right Choice for You
Leasing would be a decent option, but only for CPO vehicles. If you can’t afford to buy a Certified Pre-Owned car, you can get financing from the used cars dealer. However, the interest rate and the fact that you need to buy comprehensive insurance for the vehicle make this option unattractive. So, what can you do to lower the costs if you don’t have all the money to buy the car?
The best option in this case would be to go to a local bank or credit union and apply for a pre-approved car loan. You will get a lower interest rate than you would get from the dealer. Also, the dealer will not own the vehicle because the bank will pay the full amount.
However, saving money and not getting loans is still the safes and most efficient way to buy a used car. If you can wait for a couple more months, you can save the rest of the money yourself. Also, keep in mind that there are a wide variety of makes and models of cars available at any given time. Some are cheaper than others. You can buy a cheaper car that you can afford right now and avoid a loan.
It is our honest opinion that you should try to pay for the used car yourself, without needing to get into debt. However, if it is impossible for you to do so, you should seriously consider getting a pre-approved car loan from a bank. The interest rate will be lower than the interest rate you would get at the used car dealership. You can save a lot of money in 4 years by picking the correct financing option.