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Auto Loans for Used Cars: What to Know

Buying a car is one of the most expensive purchases you’ll ever make. As of October 2023, new cars cost an average of $47,936, while used cars cost an average of $26,533.

If you don’t have enough money saved up to purchase a car outright, you’re not alone. Around one-third of people use auto loans to finance their used car purchases.

Below, we’ll discuss the key features of auto loans and how they work. We’ll also provide some tips and tricks for getting the best auto loan. 

Understanding Auto Loans for Used Cars

An auto loan is a sum of money you borrow to purchase a vehicle. Once you buy your used car with your auto loan, you’ll have to pay it back to a lender with interest over a set period of time. 

The basic features of auto loans are as follows:

  • Loan amount – Your auto loan amount is the difference between your car’s purchase price and your down payment. You should aim to make a 10% down payment if you’re buying used.
  • Loan term – Your loan term is the amount of time you have to repay your auto loan in full. Generally, auto loans come with loan terms of 60 to 72 months, though some lenders offer shorter and longer terms.
  • Interest rate – Lenders charge interest on the money you borrow each month. If you receive a high interest rate, it can increase the total cost of your auto loan considerably. As of 2023, used car auto loans have an average interest rate of 11.38%.
  • Monthly payment – Your monthly payment amount will depend on your auto loan size, loan term, and interest rate. You want to make sure your monthly payment is affordable for your budget.

You can apply for an auto loan from a bank, credit union, or directly through a car dealership. While each of these financing options has pros and cons, credit unions stand out for their low interest rates, flexible repayment periods, and personalized customer service. 

Used Car Market Trends

In recent years, the used car market has grown significantly. This is largely due to new cars’ record-high prices—many people simply can’t afford a brand-new car. Thus, a growing number of consumers are buying used to stay within their budget. 

In addition to being more affordable, used cars offer the following benefits:

  • Slower rate of depreciation
  • Lower insurance costs
  • Fewer dealership fees
  • More robust vehicle history reports

While used cars cost less, all cars’ purchase prices have been increasing over time. What’s more, interest rates reached a 22-year high last year. Together, these factors have made auto loans more expensive. 

Luckily, not all lenders increase their interest rates at the same velocity. As not-for-profit financial institutions, credit unions can afford to provide their members with lower interest rates on auto loans than most traditional banks and car dealerships. 

Tips for Getting the Best Auto Loan for a Used Car

Along with choosing an affordable lender, like a credit union, you can get the best used car auto loan by following these tips:

  • Check your credit score before you shop – Lenders set your interest rate based on several financial factors, including your credit score. The higher your credit score, the lower the interest rate you’ll likely qualify for. By checking your credit score ahead of time, you can determine whether or not you should take steps to improve it before beginning your car search.
  • Compare rates from different lenders – Different lenders will quote you different interest rates. By applying for prequalification with a few, you can find out which one can offer you the best rate and terms without affecting your credit.
  • Negotiate your loan terms – By negotiating loan terms, you may be able to secure a lower interest rate or lower monthly payment. Just keep in mind that some lenders are more open to negotiation than others.
  • Understand the “total cost” of your auto loan – Auto loans with low interest rates or low monthly payments aren’t necessarily the most affordable long-term. To find that out, you must calculate the total cost of your loan, which includes its loan amount, total interest charges, and total fees. 

Potential Auto Loan Pitfalls and How to Avoid Them

As you shop for an auto loan, it’s important to watch out for predatory lending practices and other potential pitfalls. Here’s how:

  • Make sure you understand your auto loan terms and conditions thoroughly.
  • Review your loan contract for hidden fees, mandatory arbitration clauses, and other predatory provisions.
  • Work with a lender you can trust.

Additionally, you can also protect yourself from many of these common pitfalls by financing with a credit union. They aim to empower their members financially, and as such they’re known for practicing ethical lending and can help you get an auto loan that supports your long-term financial goals.

Credit Unions’ Eligibility Requirements and Application Process 

If you want to shop the best auto loan options on the market, you can boost your chances by becoming a member of a credit union. Your membership benefits will include access to cost-effective financing, more lucrative savings accounts, financial education, and superior customer service. 

So, how do you become a credit union member? 

You simply need to find a credit union you’re eligible to join and submit an application. Most credit unions require their members to live, work, or study within a certain geographic area. Others may also accept members who belong to certain organizations or are relatives of existing members.

Once you find a credit union you can join, you can apply for membership by:

  • Submitting the required documents (driver’s license, Social Security number, etc.)
  • Paying the membership fee (this fee can range from $1 to $25)
  • Depositing money into your new account

Discover Affordable Used Car Auto Loans from Credit Unions with CUSelect

An affordable auto loan can help you purchase a used car and pay for it over time. To find one, you simply need to shop around and compare different lenders’ loan terms, interest rates, and lending practices. 

Ready to start shopping for the perfect auto loan? Find a credit union near you with CUSelect