How to finance a used car (with or without credit history)
Financing a used car can turn out very differently depending on where you get the loan. The FTC’s golden rule: before you shop for a car, shop for financing.
Where to get the loan
- Credit unions: often have competitive rates for used cars. You need to become a member (often easy).
- Banks: especially if you already have an account with them.
- Finance companies and online lenders.
- Dealer financing: the dealer arranges the loan with a bank or finance company. It can be convenient, but sometimes the rate includes a markup for the dealer.
- Buy here, pay here: the same lot sells and finances. They often accept people with bad credit, but rates can be very high. Use it as a last resort and read everything.
How to do it right
- Pre-approval: get pre-approved by a bank or credit union before going to the dealer. You’ll know the rate, term and amount, and you can compare.
- Out-the-door price in writing: ask for the total price (with taxes and fees) before discussing financing.
- Look at total cost, not just the monthly payment. A low payment over a long term can cost you much more.
- Compare the APR. It’s the number that lets you compare loans.
- Down payment: the more you put down, the less interest you pay and the lower the risk of owing more than the car is worth.
- Watch the add-ons: extended warranties, GAP insurance, paint protection, etc. The FTC reminds you that you can say no and that they aren’t free. Ask the price of each one.
- Don’t sign if the financing isn’t fully approved. The FTC warns: if the dealer says they’re “still working on the approval”, the deal isn’t final.
If you have no credit history
This is very common if you arrived in the US recently:
- Credit unions: some have programs for people with no history, and some accept an ITIN.
- A co-signer with good credit can help you get a better rate. Note: that person is equally responsible for the debt.
- A bigger down payment lowers the lender’s risk.
- Build credit: a secured card used carefully for a few months can improve your situation.
- Buying something cheaper in cash and financing your next car with a better history is also an option.
Red flags
- Pressure to sign “today”.
- The rate or price in the contract doesn’t match what you were told.
- You’re asked to pay something up front to “get” you a loan.
- Companies promising to lower your payment for an upfront fee: the FTC says to stay away.
Disclosure
This site may add financing options through affiliate links in the future, always disclosed. Always compare with your bank or credit union.
Frequently asked questions
Can I get a loan without a Social Security number?
Some credit unions and lenders accept an ITIN instead of a Social Security number. Terms vary a lot; compare several options.
Is a 72- or 84-month loan a good idea?
The monthly payment goes down, but according to the FTC those long terms may carry high rates and the total cost is higher. It's also easy to end up owing more than the car is worth.