How to Apply for Used Car Loans Online

Applying for used car loans online is easy, especially now that post-recession credit is widely available to prime and sub-prime borrowers. Nearly all financial institutions providing loans for car purchases offer access to online used car loans through their websites.

Step 1: Know Your Credit Rating

Before you apply for a used car loan online, it is a good idea to know what your credit score is. The three main credit-reporting agencies in the U.S. are Experian, Equifax, and Trans Union, and by law they must supply one free credit report each year. To obtain your copies of your free credit reports, visit the official AnnualCreditReport.com website, which allows consumers to request all three copies from a single location.

Step 2: Comparison Shop Used Car Loans Online

After you know what your credit rating is, it is time to shop for an online used car loan. However, it is important to remember that not all online used car loans are created equal. You want to find a financial institution with the lowest interest rate combined with the smallest number of car payments.

To save time, consider using a loan aggregation service, such as Lending Tree, which will shop your loan request to a variety of lenders, allowing you to compare loan rates and terms with a minimal amount of effort.

When comparison-shopping used car loans, you will need to compare the individual elements of each loan and the total cost of each loan to determine which loan is the best deal.

To illustrate, let’s compare two used car loans for $20,000. Which one is “better”?

• Loan A requires a 10% down payment, $250 in upfront processing fees, and offers 4.9% financing for 48 months. The monthly payment is $413.71. ($22,108.08)
• Loan B requires a 15% down payment, $500 in processing fees, and offers 2.9% financing for 60 months. The monthly payment is $304.71. ($21,782.60)

Loan A sure looks better in terms of upfront out-of-pocket expenses and a shorter 48-month term. But Loan B costs less in the long run. Loan B, after the final payment is made, costs $21,782.60. Loan A is more than $300 more expensive, at $22,108.08.

Step #3: Shop Your Regular Bank or Credit Union

Once you’ve found a competitive used car loan online, it’s time to visit your regular bank or credit union to see if it can provide you with a loan that matches, or better yet, beats, the online used car loan you’ve found. Often, the financial institution through which you conduct most of your banking is able to offer you better rates and terms because it has first-hand knowledge of your finances and first-hand experience with your bill-paying history.

Step #4: See if the Dealer Can Beat Your Rate

After you’ve decided on a used car loan, applied for the loan, and have been approved, you might think you’re ready to buy a used car – and you are. However, if you are buying from a dealership, it is always a good idea to see if the dealer can beat the rate, terms, and fees of the loan for which you’re already pre-approved. Car dealers have access to a wide variety of lenders with competitive loans, and you just might be surprised by what the dealer can offer.