Financing Used Cars

Plan ahead to put more excitement and less stress into your used car purchase.

Plan ahead to put more excitement and less stress into your used car purchase.

The thought of buying and financing a used car will make most young couples wonder how the process works and what can be done to get the best terms. Buying a used car presents even more variables than the purchase of a new car. Financing a car is a serious matter, so make sure your purchase and financing is a stress-free event with a little preparation.

How Many Years Can You Finance a Used Car?

The maximum term on a used car loan depends on three factors: the age of the used car, the lender guidelines and your credit score. On a newer -- less than 3 years old -- used car you should be able to get a 60-month car loan. As you look at older cars, the term will shrink to 48 months and then 36 months. From your point of view, you do not want to have a long-term loan on an older car. Neither does the bank. If you are considering an older car, your goal should be to have it paid off as soon as possible.

How Much to Make to Finance a Car?

Unlike some types of loans, a car lender does not spend a lot of time determining whether you can afford the car payment, since the car will secure the loan. Still, if you do not have a lot of established credit, the lender will need some proof that you are employed and earn some money. The proof may be in the form of a copy of your pay stub and possibly a letter from your employer. A more pressing consideration is how much of a car payment can you afford. Your monthly budget should be able to handle the car payment you sign up for plus the other expenses of owning a vehicle.

How Much to Pay for a Car if You Are Financing?

To estimate the price to pay for a car, start with the monthly payment you can afford and back into a car price. Use a loan payment calculator and conservative rate and term estimates to determine the size of your potential car loan. Change the loan amount until the payment fits your budget. For example, with a $300 payment and a 48-month loan at 8 percent, you would get a $12,300 car loan. Add in the money you will use as a down payment and subtract 10 percent from the total to cover taxes and fees. If you can put $2,000 down, your subtotal is $14,300. Take off 10 percent from the $14,300, and you are shopping for a $12,870 used car.

Does Financing a Car Affect Your Ability to Buy a House?

Adding a new car loan to your monthly budget could definitely affect your ability to qualify for a home mortgage. A lender's debt-to-income ratio limits can make or break whether you qualify for a home loan. Your car payment is totaled up with your other debt payments plus the prospective house payment to calculate the total debt that is compared to your gross monthly income. If you plan to buy a home in the near future, talk to a mortgage lender before committing to a big car payment.

The Legal Amount of Time to Return a Car That Can't Get Financing to the Dealership

If the dealer could not get your car loan approved with a lender, immediately take the car back to the dealer. Without financing, the car is not yours to drive around town. You took the car on what dealers call a "spot delivery" -- your financing was not yet approved by a lender, but the dealer believed a lender would accept your application. Somewhere in your paperwork from the dealership is a form stating you must return the car if the financing is not approved. The form may say you have a day or two to return the car, but there is no good reason to wait. Also, going in to the dealership allows you to discuss any options that might be available, such as adding a co-signer to get your loan approved.

How Long Can a Finance Company Hold a Title on a Car?

As long as you still owe payments on your car, the finance company will hold the title. The title will be released when the last payment has been received. When you make that last payment, call your lender to see how long it typically takes to send out the title. The lender may have to send the title through the state Department of Motor Vehicles to remove its name. Expect it to take from three weeks to a couple of months to get your title after paying off your car loan.

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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