When it’s time to buy a quality pre-owned vehicle, you will likely need to secure used car financing to pay for it. There’s a wide range of used car financing options on the market, ranging from financing through a dealer’s lender to financing by the dealer itself.
Each pre-owned car lending option has its pros and cons, and we cover them all below. Continue reading to determine which pre-owned vehicle financing options are best for you.
Most used car financing occurs at the used car dealership itself. Most dealerships will have relationships with a range of lenders that handle different types of credit. This is such a common method because it is convenient. You simply find the pre-owned vehicle for you, complete a credit application, and the dealership collects your car loan options.
Also, because the dealership has an existing relationship with these lenders, they often know what they’re looking for. This eliminates the hassle of going through multiple applications to different lenders. The dealer will know which lenders are best for your credit situation. The dealership collects your down payment, completes the paperwork, tells you your monthly payments, and you’re on your way in a used vehicle.
The big downside to financing at the dealership is you’re disconnected from the process. Dealers will sometimes get a buy rate, which is the interest rate the bank will finance you for, but then add points to this rate and “sell” the higher interest rate to you. This is extra profit for you and can leave you paying more interest than you need to.
You can walk into a bank and complete an application for used car financing in person. In some cases, you may even be able to do it online. This bypasses the dealership completely, getting you direct access to the lowest possible interest rate the bank offers.
The bank will process your application right then. If you’re approved, you’ll either receive a bank cheque that you can fill out for the amount of the car you choose or a pre-approval letter to take to the dealership.
Another benefit of financing through a bank is you always have in-person customer service at your disposal. So, if you run into a problem, you can just walk into the bank for answers instead of calling customer service and sitting on hold.
While this gets you access to the best possible rate without a middleman adding points, you limit your options. You can apply to only one bank at a time. If you want competing offers, you’ll have to apply multiple times. Also, banks tend to prefer borrowers with high credit ratings, so if you don’t have good credit, you may not get approved.
Like a normal bank, you can also secure pre-owned auto financing at a credit union. It’s the same basic process at the credit union, though there’s less chance there will be an online application.
Credit unions often can offer special financing rates to their members, so you may get an even lower rate than you could at a bank. However, if you’re not a member, you may not be able to get a credit union auto loan. So, you’ll need to become a member, meaning maintaining another bank account.
Another downside is credit unions can sometimes be a little behind the times technologically. This may mean no online payment options or mobile app.
There are also virtually limitless numbers of online auto lenders you can apply to online and get near-immediate pre-approval.
Once you’re approved, the lender will usually send you a blank cheque that you can write out to the dealership up to your pre-approved amount. This makes you like a cash buyer when you walk into the dealership, so you can focus on the total price of the vehicle and the trade-in offer instead of the financing.
This type of lending is also highly competitive, and the lenders often have minimal overhead costs. This means potential interest rate savings for you.
Many online lenders specialize in bad credit score used car loans. So, if you have some credit history issues, they can often get you credit approval when others can’t
Like a bank, though, if you want to get multiple auto finance offers, you must apply to multiple lenders. This can become tedious after a while. Plus, some online lenders have strict financing rules you must navigate, like the minimum model year and maximum mileage. So, you could find what you think is the perfect car only to learn it does not qualify for financing.
There are also buy here, pay here (BHPH) dealerships that don’t use lenders. Instead, they offer in-house financing where you pay a small down payment and make monthly, weekly, or biweekly payments at the dealership.
BHPH financing is generally reserved for car shoppers with bad credit, as BHPH dealers will approve virtually anyone. For pre-owned car shoppers with a blemished credit report, this may be their only option to get a used car on a payment plan.
BHPH financing comes with big issues though. These problems start at the loan terms, which typically include sky-high interest rates and monthly payments. Also, BHPH dealers aren’t always known for stocking the highest-quality pre-owned cars and offering comprehensive warranties.
Clutch, Canada’s first online pre-owned auto retailer, has auto financing options to fit your needs and busy lifestyle. Simply fill out an online credit application, and our finance department will work with our lenders to get you pre-approved within 24 hours.
Even better, our pre-approval system performs only a soft credit inquiry, so it has no negative impact on your credit score. So, you can get a risk-free pre-approval in just a day.
On top of this convenience, Clutch has a huge selection of high-quality pre-owned vehicles from all the major automakers. They’ve all been through a rigorous 210-point inspection and reconditioning process to ensure they are in top condition. We then back them up with a 90-day or 6,000-km warranty.
Plus, you get a 10-day or 750-km test-own period. If you don’t love your Clutch vehicle within this time, you can return it for a no-questions-asked refund or exchange it for another vehicle.
Once you settle on the Clutch vehicle you love and get financing, we’ll deliver the vehicle to your home and even pick up your trade-in vehicle if you have one. Buying a vehicle online through Clutch is as easy as it gets.