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Used Car Loan Rate

What Financing Options Provide the Best Used Car Loan Rates?

Credit Union or bank – Check the interest rates for used car loans offered by banks and credit unions in your area. If you are a member of a credit union, you may be eligible to obtain a very favorable used car loan rate from them. Credit unions often provide their members better overall interest rates than commercial banks.

Home Equity Loan – Until the collapse of the housing market with its plummeting real estate values, home equity loans were popular options for funding the purchase or the down payment on a new or used car. With the steep decline in home values over the past few years, this is a less feasible option for many; however, as interest rates on home mortgages remain low, this may still be a viable option for those who have equity in their home.

Loans from 401(k) or Individual Retirement Accounts (IRA) – Rather than extracting cash from a 401(k) or IRA and incurring tax ramifications, often the account owner can arrange to “borrow” from their own account. The rules for doing this differ, but in essence it is “borrowing” your own money by using your 401(k) or IRA as collateral or security for the loan. The loan cannot exceed a certain percentage of the account’s value, and it must be repaid, but this may be an option for obtaining a favorable used car loan rate.

Borrowing Against Life Insurance– Some whole life insurance policies permit the insured to borrow against the policy up to a certain amount. Again, it is a “loan” against the value of the life insurance policy, so it must be repaid. This is not available on all life insurance policies. It is only available on policies with actual accumulated cash value; therefore, the ability to borrow against a term life policy is not available.

Personal loan from family and friends is also a potential option for lower used car loan rates.

Car Dealerships – Research suggests car dealerships and used car dealers actually have the least favorable used car rates, so use them only if you cannot obtain a more favorable used car loan rate elsewhere.