Used car as collateral
The fact that you can finance a new car relatively easily with installment payments is hardly anything special today – but more and more you can also finance a used car with installment payments and thus raise the costs of the purchase price more quickly. This means that people can also afford a car for whom the price of a used car is still too high.
An important prerequisite, however, is that the used car does not have to be offered by a private person, but by a dealer. Very few, and only in exceptional cases, financiers of used cars also offer financing for used cars that are bought privately.
There are two reasons for this: on the one hand, a dealer is obliged to offer an invoice with sales tax identification and a dealer warranty (also for used cars), on the other hand, the price of a used car at a dealer is much higher than that of a private provider. The latter is also the reason why it was not possible for a long time to finance a used car by paying in installments.
Because the profit for the bank was rather low, with a rather high risk, since the used car as collateral is more of a value risk than a new car, which can still be easily sold at a high price if the borrower should fail to finance it ,
Advantage of financing a used car
So far, mainly annual cars, i.e. almost new used cars, have also been offered with financing, but little by little this is also possible for older models. Depending on the situation, you can finance a used car in installments in different ways: Either the financing is offered directly by the dealer in cooperation with a partner, usually a bank, or you are looking for a bank that would take over the financing.
The advantage of financing a used car through a dealer is that the bank has experience with this type of financing and the chances of being rejected are relatively slim. The disadvantage is that you don’t necessarily get the cheapest offer and the dealer’s commission for financing a particular bank can make the financing relatively expensive.
The disadvantage of financing through the house bank or another bank may be that the latter does not want to take over used vehicle financing, since the security provided in the form of the used vehicle is too low and too risky. But: Especially with cheap used cars with a rather low value of a few thousand USD, a trick is worth it: Because instead of a dedicated used car financing, you can also take out a consumer loan.
Car with an installment payment
This does not have to be used for a specific purpose, but the interest can be higher than with a used car financing. However, this disadvantage can be compensated for by negotiating with the dealer, because if you borrow the money from another bank, possibly also more expensive, you can negotiate cash discount discounts and thus reduce the purchase price. Because where the cash comes from, the trader does not know – but this is only worthwhile if you can significantly reduce the purchase price when negotiating, so that you initially pay more interest, but pay for a smaller amount.
Should you still prefer to finance a used car with an installment payment through a dealer, then it also applies here that private credit checker information is often required and you have to prove your creditworthiness, e.g. B. in the form of pay slips and bank statements, so that you can even make an installment purchase. If that is not enough, you may also have to provide a citizen, which, however, is a risk for the guarantor and can also make used car financing more expensive due to the higher risk.