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How to Get a Loan for a Used Car

By: StaffSeptember 6, 20213 min

Determine Your Car Buying Budget

So exactly how much car can you afford? Financing a used car requires deciding how much you can afford to spend each month. Ideally, your used car loan payments should not exceed 5-10% percent of your take home pay. Keep in mind that this includes all of your car payments, regardless of whether you own one car or two dozen.

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To calculate your monthly payment: Down payment, trade-in value, the purchase price of the vehicle, the length of car loan and finance rates all must be taken into consideration. To calculate what you can afford, check out our car payment calculator.

Monthly Car Allowance

Deciding what you can afford involves more than simply calculating your monthly car payments. Costs of vehicle ownership include:

  • Insurance: Buying a car, regardless of whether it is new or used, can result in higher car insurance rates. Consider the insurance rate of the vehicle you’re selecting.
  • Maintenance: Even a brand new car needs tire rotations, oil changes, and new wiper blades - Small expenses can add up quickly.
  • Gas Prices
    : Are you making the switch from a sedan to an SUV? If so, you can expect to pay more at the pump. Consider the impact of MPG on your monthly fuel budget.

Check Your Credit Score

Checking your credit score is something that should begin months before you start the car buying process. Why? Inaccuracies in your credit report/score can take up to three months to be removed. When it comes to applying for a used car loan, a bad credit score means a higher interest rate. To see how your credit rating affects your car loan, check out one of the many online calculators out there.

How to Get Your Free Credit Report

Your best bet is to go with a government approved source. As a result of the Fair and Accurate Credit Transactions Act, you are entitled to a free credit report every year from each of the three major credit bureaus: Equifax, TransUnion, and Experian. To request your free report head on over to (The only authorized free credit report website).

What to do With Your Credit Report

You received your credit score. Now what? Start searching for inaccuracies: Look for accounts that do not belong to you, have been closed, or have incorrect limits and balances. If you discover inaccuracies, write to the reporting credit bureau and submit evidence to the contrary. By law, they must substantiate any claims. If your credit score is still low – you’re shooting for something higher than 620 – the Better Business Bureau offers tips for improving your rating.

Explore Your Used Car Loan Options

After creating a budget, calculating an affordable car payment, and researching your credit rating, you can begin exploring your used car financing options:

Advantages of Financing through a Dealership

While obtaining financing through the dealer is often more expensive, it definitely has its advantages:

  • Multiple Lenders: Car dealers work with multiple lenders. This reduces the hassle of shopping around for the best rate.
  • More Credit Options: Do you have less than stellar credit? While a credit union may not be able to offer you financing, a dealership will work with you to find someone who will.
  • Tax Credit: While this varies from state to state, many states allow you to deduct the trade-in value of your vehicle from the retail price. This, in turn, lowers the sales tax. When you finance outside a dealership, you lose this advantage.

Advantages of Financing through the Credit Union

Another option is to go directly to the bank or credit union. While credit unions often offer lower rates than that of banks, both can be an advantageous route when compared to the dealer.

  • Prior Approval: You can start shopping for a used car loan before you step foot at the dealership. This will help you narrow your search and settle on a car you can afford.
  • Lower Interest Rates: Seeking outside financing traditionally results in a lower interest rate. This is especially true if you have established a relationship with your local credit union or bank.

For a demonstration of the difference between a bank, credit union, and dealership loans on used cars, head on over to and use their car loan rate comparison calculator. Keep in mind that getting approved for a car loan does not necessarily mean that you can afford the payments. When financing your car, take the time to establish a budget, do your homework and shop around for the best interest rate. At we have partnered with Auto Credit Express to offer a low auto financing option. 


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