How to Get a Used Car Loan

Here's a quick summary of how to get a used car loan:

Figure out your budget
Check your credit
Research cars
Get pre-approved for loans
Test drive cars
Negotiate if necessary
Finalize loan and vehicle purchase
Complete paperwork
Repay your loan

If you need a refresher or if you’re buying a car for the first time, we’ll walk you through how to get a loan for a used car without spending too much money.

1. Budget for a Vehicle

To figure out what kind of used car loan you need, you first need to know where you stand right now. Create a monthly budget (if you don’t currently have one) to see how much extra you can afford each month for your car-related expenses, including:

Loan payment
Fuel
Insurance
Registration
Maintenance
Saving for repairs

After all, taking out a used car loan won’t help if you can’t afford to drive it anywhere. Remember to leave yourself some wiggle room in your budget so you can more easily pay for things like surprise expenses and inflation-related bill hikes.

Finally, consider how much (if anything) you have saved for a down payment. There are many reasons why Future You will thank you for making a larger car down payment (or saving up for one) if you’re able, like lower monthly payments, lower rates, and better odds of approval.

Buying a car has always been stressful and exciting, but that’s especially true as of late with all of the wonkiness in the used car market brought on by the pandemic. The good news is that things seem to be approaching “normal,” in terms of prices and credit requirements, meaning much of the old standby advice still applies.

2. Check Your Credit Reports and Score

Your credit score is a significant factor used by lenders to calculate your loan costs, so it pays (sometimes almost literally) to do a quick tune-up of your credit before you apply for a used car loan.

If possible, pay down your credit card debt to reduce your revolving credit utilization. And it only takes a few minutes to check your credit reports for errors. If you find any mistakes, dispute them with the credit bureaus since they can unfairly penalize you.

It’s also a good idea to check your credit score, too. This can help give you some idea of what rates lenders might charge you and, thus, how expensive your monthly payments may be. You can use that information to better plan what type of used car is within your price range.

3. Research Used Cars

You probably have some idea of what type of used car you want, but now’s the time to knuckle down and pick a few likely candidates. That way, you’re less likely to be pushed into buying a car that won’t fit your budget or your lifestyle. Explore used car websites to see what’s available near you.

Key things to take note of include features you need, such as a large passenger capacity or a high degree of fuel efficiency, as well as safety features, owner reviews, and maintenance costs. You can get estimates for fuel, maintenance, and insurance costs (get quotes online or through your current insurer) to make sure the models you’re considering fit within your budget.

4. Get Pre-Approved for a Car Loan

You can shop around for different options by getting pre-approved for used car loans. Pre-approval doesn’t mean you’re actually applying for the loan yet—rather, it’s the lender’s way of vetting your half of the deal first. The other half depends on the car you’re buying, so the final loan decision and interest rate will come after you’ve nailed that piece of the puzzle down, and after a more thorough review of your credit and finances.

There are a few reasons why it’s best to get pre-approved with a few lenders before you head out car shopping. Being pre-approved helps you:

Find the cheapest loan option
Avoid being shoehorned into an expensive loan
Be more confident you’ll actually be able to buy the car
Have bargaining power in negotiating the best loan
Avoid stress from rounding up a last-minute financing offer
Get more time to find backup lending options and assistance, if needed

The only downside is that lenders will do a hard credit check, which can impact your credit score. If you get all of your rate shopping done within a 14-day window (or 45 days, in some cases), however, all of those inquiries will typically be rolled together into one single inquiry, limiting the damage to your credit. Pre-approval offers typically last for 30 days, so it’s best to wait for this step until you’re ready to start shopping.

Tip

If you’re not able to get pre-approved for financing, see if someone you trust with better credit than you will serve as a co-signer or a co-borrower for your loan to boost your approval odds.

Compare the Best Used Car Loan Lenders

Lender	Loan Amounts	Loan Terms
PNC Bank	$5,000–$100,000	1–7 years
Consumers Credit Union	$500–$350,000	1–7 years
AUTOPAY	$2,500–$100,000	2–8 years
Chase Auto	Starting from $4,000	1–7 years
NASA FCU	$5,000–$125,000	3–7 years
Credible	$600–$100,000	1–7 years

Tip

Learn more about our top used auto loan lenders to find an affordable loan that fits your car and your budget: The Best Used Car Loans.

5. Test Drive and Schedule Inspection

Once you figure out the make and model you’re interested in, find local sellers to contact and schedule a test drive. It’s best to test-drive a few cars, if you have the time and ability, so you can be confident you’re purchasing the right used vehicle.

Important

Be aware that your lender options may be more limited if you opt for a private-party purchase, since many lenders only finance used cars purchased from dealerships.

When you find the car you want to buy, it’s recommended to pay for an independent pre-purchase inspection, which typically costs around $100 to $200, according to J.D. Power. Mechanics frequently offer this as a mobile service, traveling to the seller themselves so you don’t need to drive the car off-site. It’s not inexpensive, but it’s a good way to guarantee you won’t pay even more in the long run if the vehicle turns out to be a lemon.

6. Review Dealership Financing

If you’re purchasing a used car from a dealership, you can use your pre-approved offers to negotiate a cheaper loan. You can potentially save even more money if you test-drive cars at other dealerships, using the various offers as bargaining chips.

Circle back to each dealership with their competitor’s offers to see if each business is willing to charge less for financing, or even lower the cost of the car itself. In that way you can drive the costs down for both the car and your loan, meaning you’ll pay far less overall in the long run.

You can also negotiate the value of your trade-in, if you have one. It can be tough to juggle all three balls at once��financing, car purchase, and trade-in value—so try adding up the car’s purchase price and total loan cost in interest and fees. Then, subtract the cost of your trade-in. This will give you a holistic picture of the complete cost for each offer, which you can use to zero in on the best vehicle to purchase.

7. Finalize Your Loan and Vehicle Purchase

If you’ll be going with dealership financing, the financing department will handle the final loan arrangements and payment for the car. If you’ll be using a lender that you found on your own, you’ll need to reach out to them at this time to wrap up the final loan details.

The specifics of how this works vary by lender. Some may send you a check directly that you can hand to the seller, for example. Others may reach out and transfer the money directly to the seller.

8. Complete Final Paperwork

In addition to the loan, you’ll also need to make sure the title, insurance, and registration are all taken care of. Your specific responsibilities depend on whether you’re buying a car from a dealership or a private seller. Dealerships may handle the title transfer for you, for example, while you might need to do that on your own if you’re buying from someone off Craigslist.

If you currently have an auto insurance policy, it’s a good idea to check in with your insurer before you purchase the car. Aside from giving you a more accurate quote, they can also let you know how purchasing a new policy works. In many cases, your new (used) car will be covered under your current auto insurance policy for a 30-day grace period, giving you time to finish setting up a new policy after you drive your new car home.

9. Repay Your Loan

You’ve done a lot of work up until this point, and now it’s time to set yourself up for one of the most important parts of used car loan success: signing up for autopay. This has several advantages. With autopay, you'll:

Avoid late fees
Grow your credit automatically with on-time payments
Prevent damage to your credit from late payments
Save time spent in making payments manually

Autopay will typically make sure your minimum payments are taken care of, but you can always make extra payments or even pay off your loan early, too. It’s a good idea to make sure your loan doesn’t have any prepayment penalties before you do this. Most don’t, but it’s always wise to check.

Although autopay usually works as intended, it can occasionally fail for one reason or another. So, it’s a good idea to keep an eye on your online or printed statements to make sure your payments go through properly.

Frequently Asked Questions (FAQs)

Is It Smart to Finance a Used Car?

If you’ve done your research to determine what’s within your budget, shopped around for the best loan, and negotiated the lowest rates and purchase price, financing a used car can be a smart way to buy a vehicle and build your credit at the same time.

What Is a Good Credit Score for a Used Car Loan?

The best interest rates on used car loans usually go to people with “super prime” credit scores of 781 or above. According to Experian data from the fourth quarter of 2023, people with super prime credit were charged an average interest rate of 7.66% for used car loans, while those in the “prime” tier—661 to 780—paid an average interest rate of 9.73%, quite a jump in costs.

How Many Years Should a Used Car Loan Be?

It’s best to choose the shortest-term used car loan you can find with monthly payments that will still fit within your budget, which is often three years with most lenders, although some offer shorter terms (and some have longer minimum terms). Lenders typically charge lower rates on these loans and since you’ll be paying those rates for less time, these are the cheapest loans overall. However, most people chose much longer loan terms—over five years—during the fourth quarter of 2023, according to Experian.

How Much Will a Car Loan Drop My Credit Score?

Used car loans can raise and lower your credit score depending primarily on how you manage loan repayment and where you’re at in the loan life cycle. Applying for any new credit can usually lower your credit score by a small amount temporarily, due to the hard inquiry and added debt. Making a late payment or defaulting can cause a major drop in your credit score. If you make every payment on time, however, you’ll usually see your credit score increase over time, all other things being equal; and if you don’t have any other installment loans on your credit reports, an auto loan could raise your score by adding some diversity to your credit mix.