With the high prices of new vehicles these days, most consumers now look to purchase a used vehicle and need used car auto loans.  I’ve always preached the merits of buying a 2-3 year old vehicle, with low miles rather than a new vehicle because of the money you save, not only when you buy it, but also when you resell the car.  But even used cars average about $10 to $20,000 and not many people have that kind of cash lying around.  This is where used car auto loans enter the picture.

Three types of used car auto loans that buyers should consider:

1. Direct-to-Consumer: These are used car auto loans, where you obtain a loan directly from a financing source prior to visiting a dealership.  Usually you can get a preferable used car auto loan rate in advance, then purchase a used car from an auto dealership
   
   
2. Used Private Party Loans: This is a used car auto loan where you obtain a loan from a financing source for the purchase of a vehicle from a private party (family, friend, neighbor, newspaper, etc). This can be a great way to buy a used vehicle, because you save money on the vehicle as well as the financing.  However, it may be more difficult to qualify for this type of financing without a solid credit standing.
   
   
3. Dealership Financing: This is the most common form of used car auto loan, where you purchase a vehicle at a dealership and they arrange the financing.  If you don’t do your homework, you could easily get roped into a higher used car auto loan rate than necessary in this scenario. But this is usually the best (or only) option for bad credit auto loan situations. It always pays to know your credit score and do research in advance through a company like myAutoloan.com.  For good credit customers, dealers may have incentives that could actually improve your used car auto loan rate compared to a Direct Lender - so it's important to look at all your options. 

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Unless you have very poor credit, it’s usually best to start with Direct Lenders for your used car auto loan. This type of financing is obtained by the customer directly from a finance company, bank or credit union and used to purchases a vehicle at a dealership or from a private party.  Once the buyer decides on a vehicle and signs the contract, the buyer uses the pre-arranged financing to pay for the vehicle—usually with a check or similar bank instrument that can be used almost like cash-in-hand.

The benefit of this type of used car auto loan is that the customer can shop for a vehicle like a cash-buyer and focus the negotiation on the price of the vehicle instead of confusing “monthly payment scenarios” that allow the dealership to maximize their profits.  This could save you thousands of dollars over the course of a 5 year loan.