Problems In Used Car Financing

Financing properly is​ more important in​ financing a​ used car than when buying a​ new car. Most problems that occur in​ buying a​ used car are due to​ there being a​ problem connected with the financing. Getting the used car financing worked out properly is​ the key to​ a​ successful used car purchase.

Most buyers aren't aware of​ how important the paper work is​ to​ making the deal a​ successful one or​ a​ failure. They view it​ as​ paperwork that should be completed as​ quickly as​ possible so they can drive away in​ their new car.

To start with, it's very important to​ get the deal agreed upon by the salesman to​ be put in​ writing in​ the contract. This often involves determining monthly auto loan payments based on an​ interest rate. Sometimes, the interest rate a​ customer qualifies for is​ inflated so the dealership can make extra profit.

This headache can easily be avoided by obtaining independent vehicle financing before going to​ the dealership. This means the consumer can proceed as​ a​ "cash buyer" and negotiate only the price of​ the car. Car salesmen prefer customers to​ be "monthly payment" buyers because, in​ this way, it​ is​ easier to​ obscure the total cost of​ the vehicle.

Independent car financing can be obtained from a​ bank, credit union or​ on-line lender. With the popularity of​ the internet, applying for used car refinance is​ proving to​ be simple and very easy to​ do. Many on line lenders respond very quickly - sometimes as​ short as​ 15 minutes by email or​ telephone. if​ the application is​ approved, the borrower is​ given a​ credit limit at​ an​ established interest rate. Sometimes a​ blank bank check is​ issued with no obligation to​ use it.

"For the majority of​ consumers, even if​ you know you have good credit, there is​ a​ little apprehension and tension around applying," one lender said. "So instead of​ going into a​ dealership and giving them your information and being sent to​ the coffee machine to​ wait for an​ answer, you can apply on-line, 24/7."

Most people familiar with how used car dealerships operate confirm that obtaining independent car financing is​ beneficial to​ most consumers.

The most common problems that have a​ negative impact on a​ person trying to​ finance a​ used car --and their solutions - to​ ensure that things go smoothly are the following:

Problem #1: Many consumers don't know what their credit rating is​ when they apply for an​ auto loan. The strength of​ their credit score largely determines what kind of​ interest rate they will receive. Therefore, it's critical to​ make sure your credit report is​ in​ the best shape possible before shopping for a​ car.

SOLUTION: Order a​ copy of​ your credit report and look for items that may stand in​ the way of​ you getting a​ good rate. Correct any issues or​ errors promptly. Are all of​ your lines of​ credit in​ good standing? Are there any signs of​ identity theft? The credit bureaus will tell you how to​ correct errors when they send you the report. The following numbers and Web site addresses will assist you in​ checking your credit.

Problem #2: Many consumers are tempted to​ overspend once they get to​ the dealership.

SOLUTION: It's a​ good idea to​ set a​ sensible price range for the car you want to​ buy and stick with it. Experts suggest that monthly car payments and related expenses should not exceed about 20 percent of​ your monthly net income. You can even bring a​ printout of​ your budget to​ the dealership as​ a​ reminder.

Problem #3: Most consumers arrive at​ the dealership without having researched the current interest rates being offered in​ the marketplace, so they have no idea if​ they're being offered a​ competitive rate.

SOLUTION: Use the Internet as​ a​ research tool to​ compare rates. Check out Web sites like for national averages, and the Web site of​ your own financial institution.

Problem #4: Most consumers arrive at​ the dealership without approved auto financing in​ hand. This is​ either because they are not aware of​ all the financing options available, or​ they assume they will qualify for a​ low rate at​ the dealer. This approach deprives the consumer of​ bargaining power when it​ comes to​ negotiating the lowest possible interest rate.

SOLUTION: Become an​ "empowered buyer" by getting a​ no-obligation loan before visiting the dealership. Having your own loan could save you significant money.

Problem #5: Many dealers offer a​ choice between discounted (or zero-percent) financing or​ a​ rebate - but not both. Consumers may erroneously assume that the zero-percent loan will deliver the most savings.

SOLUTION: Sometimes it's better to​ take the cash rebate and apply it​ against the purchase price of​ the vehicle - and then use your own pre-approved car loan to​ finance the vehicle. The savings chart below shows how a​ low-interest rate and a​ rebate can "beat" a​ zero-percent deal.

36-Month Car Loan Comparison


Cost of​ car
Less equity in​ trade
Less rebate
Amount to​ finance
Monthly payment
Total cost





Source: Capital One Auto Finance

Problem #6: By the time they get to​ the finance department, many consumers are mentally worn out and don't review the contract thoroughly before signing. as​ a​ result, they may agree to​ buy things they didn't plan on (such as​ an​ extended warranty, rust-proofing, etc.).

SOLUTION: Before you sign any papers or​ hand over any money, check the figures in​ the contract and understand all the charges. The sudden appearance of​ extra fees should be questioned. Sometimes dealers add extra fees - so-called "junk fees" - to​ retake profit they have lost by selling cars at​ invoice.

PITFALL #7: The consumer feels rushed, pressured and confused by the dealership's staff. in​ some cases these buyers have second thoughts about completing the deal - but sign the documents anyway.

SOLUTION: Consumers who feel out of​ their comfort zone should walk away. The buyer - not the seller - should be the one in​ control of​ the process. Remember, the federal "cooling off" law does not apply to​ cars.

If you do your homework ahead of​ time, and know what to​ expect before hand, the paperwork process can go quickly and easily. But more importantly, you will receive a​ deal on your car loans that you can feel good about for the life of​ the car.

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