Financing for Purchasing Used Cars

By: Amanda Hash

Most people get finance through dealerships and end up closing on expensive deals. That's why most advisors suggest resorting to car loans from banks and financial institutions. However, those who want to purchase used cars will not find finance from dealerships but also, in most cases may not get finance through banks and traditional financial institutions either. Happily, there are alternative sources of finance.

There are many non-traditional lenders out there offering car loans and other kind of loans that you can also use for purchasing used cars. Purchasing directly from the owner can save you thousands of dollars, but if you do not have the funds, you will need financing and that's when car loans can provide you with the aid you need.

Car Loans For Used Cars

Getting finance to purchase a used car can be difficult, most lenders will not like the idea due to the high risk involved in such transactions. The value of the car depreciates rapidly if it is not a new car and thus, if used as collateral it will not serve its purpose. That's why some traditional lenders provide loans for purchasing used cars but with short repayment programs so as to avoid the car's value depreciation.

However, there are non traditional lenders willing to grant secured and unsecured loans for purchasing vehicles that in exchange for a slightly higher interest rate, will provide you with all the funds you need for purchasing a used car from the previous owner and tailoring the loan to suit your needs. You will be able to get higher loan amounts, longer repayment programs, lower monthly payments, etc.

Alternative Sources of Funding

An interesting alternative for financing a used or even a new car purchase is to resort to home equity loans. It may sounds strange but truth is that home equity provides a very interesting source of funds as it let's you obtain very advantageous terms on your loan like a low interest rate, low monthly payments, higher loan amounts and more flexible repayment programs.

With a home equity loan you will not have any difficulties in obtaining the loan amount you need because the collateral for the loan will not be the car itself but the equity you have left on your home. Equity is the difference between the value of your property and the debt that is guaranteed by it.

Advantages of This Method

Due to the less risk that lending through home equity loans represent, you will be able to obtain the money with an interest rate that can be as low as half the rate usually charged for car loans. Also, since you can obtain a loan with a repayment program of up to 15 years. You will be able to get significantly lower monthly payments you will be able to afford without having to make any sacrifices.

The use of equity for purchasing cars may not be the traditional way but certainly provides a lot of benefits and is specially useful when you want to purchase a used car that usually has more complications in terms of financing. However, bear in mind that with a home equity loan, if you fail to repay the loan you may suffer repossession of the property.

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