How to Finance a Used Car and Save Big on Your Auto Loan
Follow these steps to avoid expensive mistakes and get a loan with budget-friendly monthly payments and interest rates
Buying a used car can be much less expensive than buying a new one, especially as new-car prices remain high in response to shifting tariffs and other market uncertainties. But those savings can quickly evaporate if you need to finance your purchase.
Check Your Credit Score
Whether buying new or used, the best interest rates generally go to borrowers with the best credit. According to credit reporting agency Experian, the average interest rate for a used-car loan in the first quarter of 2026 was 6.3 percent for someone with the highest credit rating and 21.77 percent for someone with the lowest credit rating. The difference between those two ratings could reach into the tens of thousands of dollars over the course of a traditional loan.
Tip: Check your credit score periodically to see whether there are any areas that need improvement. Use free credit-reporting services like AnnualCreditReport.com or Experian. If you spot any errors in your report, promptly contact the three credit bureaus to correct them, as those mistakes could make or break your ability to get an affordable loan.
Melinda Zabritski, head of automotive financial insights at Experian, says that in general, the best ways to keep your credit score in good shape are to pay bills on time and keep the balances on your credit cards as low as possible. (Learn how to get the best car loan rate despite a low credit score.)
Get Preapproved for a Car Loan
This is good advice for any car purchase, and it’s especially important if you’re financing a used car bought from a private seller. Getting preapproved also gives you a baseline to start comparing rates and gives you the option of declining a dealer’s financing if the terms aren’t favorable.
Be sure to shop around. Online vendors like Carvana offer prequalification, but you may get a better rate from your own bank or credit union.
Tip: Don’t worry about making multiple inquiries for auto loans. They may be excluded from your credit report. If not, they’re likely to be counted as a single inquiry if they’re all made within the same 30-day period.
Maximize Your Down Payment
Put as much money down as you can comfortably afford, Bell says. The more you pay up front, the less money you’ll lose to interest payments. For example, if you put $3,000 down on a $27,000 car, you’ll pay a total of $30,213.49 on a 48-month, 6.3 percent APR loan (not including sales taxes or fees, which vary widely by state and can add thousands to the price). A $5,000 down payment will save more than $400 over the life of the loan and result in lower monthly payments.
Tip: If you compare how much interest your money would earn in a savings account, it’s probably less than what you would save by making a larger down payment.
Don't Get a Long-Term Car Loan
A 60-, 72-, or 84-month loan may keep monthly payments low, but you’ll pay more in interest over time and probably also pay a higher rate. Using recent interest rates from the Navy Federal Credit Union as an example, you could finance $24,000 at 4.79 percent over 36 months for a total of $25,813.47. A 60-month loan would incur a higher 5.29 percent rate and an overall payment of $1,552.84 more than the shorter-term loan.
Tip: Choose the shortest loan term you can afford. This will minimize interest payments and reduce the likelihood that you’ll find yourself “upside down,” or owing more on the loan than the car is worth.
More Ways to Avoid Costly Used-Car Mistakes
The following expert advice will help you avoid buying an unreliable used car and paying too much, which will drain your finances and could affect your future car-buying options.
Check the vehicle history. You don’t want to be on the hook for paying off a loan only to find significant problems with the car or hidden crash damage that plummets its resale value.
Vehicle history reports can fail to indicate flood, collision, or other damage, so checking more than one for any car you’re serious about buying can help eliminate potential blind spots.
CarFax reports can cost $25 to $45, although many dealers include them for free. The National Insurance Crime Bureau also offers VINCheck for free. Additionally, the National Motor Vehicle Title Information System offers links to numerous approved vehicle history providers. Always have a vehicle inspected by a trusted mechanic before you buy it.
Say no to dealer add-ons. Once you’ve agreed on a price, the dealer may try to persuade you to buy an extended warranty. Don’t consider it before making sure the original factory warranty has expired. Certified pre-owned (CPO) cars come with extended coverage, so you may not need more. In general, buying an extended warranty is usually not worth the money. Choosing a car known for reliability is a better investment.
Instead of purchasing an extended warranty, consider starting a rainy day fund for maintenance. That money could earn a little interest if it’s in the right type of account, and you can apply what you don’t use to the purchase of your next car.
Factor in repair costs. Most used-car shoppers do so with the hopes of saving money over buying a new model, but don’t forget the inevitable costs of replacement tires, brake pad replacements, and unexpected repairs. These expenses vary widely depending on the model, its age, and how it has been used.
Choosing a model from Consumer Reports’ list of recommended used cars may help limit repair costs. The Consumer Reports Used Car Marketplace shows owner satisfaction and reliability ratings right within the listings. Whichever car you choose, come up with a rough annual budget for upkeep using our car maintenance guidelines. Add that to the estimated annual cost to finance the car to find out how much money you’ll actually save by buying used.
Editor’s Note: This article has been updated since it originally appeared in the February 2023 issue of Consumer Reports magazine.
