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September 10, 2015

Financing a Used Car in 6 Steps

When it comes to acquiring a loan for either a used or new car, you never should just “wing it.” Instead, you always need to do  some research beforehand.

What kind of research? Take a look below for the six steps it will take you to secure a car loan.

  1. Your first step is a bit of research: find out your credit score.

Your credit score is a three-digit number that is calculated from your credit history. It takes into account how well you honor your credit obligations (how well you make payments). In other words, it helps predict the risk the lender is taking on by giving  you a loan: how much of a credit risk are you (how likely are you to default on the loan)? The higher this three-digit number (and it can range from 300 to 850) the better you appear in the eyes of a lender.

The higher your credit score, the better car loan you can secure.

While there are several credit scores models out there, the one to really pay attention to is your FICO score. Most lenders weigh your FICO most heavily compared to other credit scores.

A good credit score generally is believed to be one 720 or higher.  You’re considered to be a poor credit risk – and therefore will have a higher loan interest rate, if you can get a loan at all – if your score is 500 or lower. A score between 501 and 600 is considered “poor,” a score between 601 and 660 and higher is considered fair, a score of 661-780 is good, and one 781 and above (to 850) is considered excellent.

(You’re entitled by law to receive a credit score report for free annually. is one company that can help you do this.)

  1. Once you know your score, THEN start shopping for car loans.

Once you get your report, if you notice errors, you’re going to have to approach the companies that provided you credit (credit card companies, mortgage lenders, banks, etc.) to fix the errors. Fixing erroneous information that went into ascertaining your credit score’s number can help raise it.

Once you’re satisfied that the mistakes have been fixed and your score accurately reflects your credit history, then – and only then – should you start shopping for a loan.

  1. Don’t shop for a car until you have a loan.

Many people understandably start looking for cars as soon as the idea hits them. This can lead you to falling in love with a certain car and working with a salesperson who is more than happy to make sure you get that car. While this sounds fantastic, this could mean that you end up a) buying a car you really can’t afford and/or b) getting a loan that’s also unaffordable.

Promise yourself you won’t go car shopping or even “just looking” until you have secured a loan.

  1. Aim for a loan with terms as short as possible.

While a five- or even six-year loan (yes, six-year loans are available today) can sound great (much lower, “affordable” monthly payments), you’ll end up paying far more for the car over the term of your loan than with a shorter loan. You’ll also be more likely to be what is called “upside down” on the car (you’ll owe more on the loan than the car is worth) with a longer term loan. Your interest rate also often is higher.

  1. Work hard to save up at least 20 percent in a down payment.

Putting money down on the car up front means two things: you’ll need to take out a smaller loan (possibly allowing you to take out a shorter-term loan) and you have less chance of ever finding yourself upside down on the loan.

  1. Save up enough so that you can pay taxes and fees in cash. 

Again, doing so means you don’t have to put these taxes/fees into the loan, creating a smaller loan amount.

We understand here at PAACO that terrific and trustworthy people can have poor credit scores. That’s why we’re known throughout the Dallas region for helping people get great loans.

We can also help you find a great used car, too!

Contact us 877-810-4555 for more information on our used car sales and financing services.

Image courtesy Stuart Miles/

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