How to Get a Used Car Loan

There’s no denying that buying a car is an expensive process. These days, even buying a used car can break the bank. Luckily, with the right financing, you can secure a used car loan that eases the financial burden and helps build your credit, paving the way for a stable financial future. If you’re wondering how to get a loan for a used car, then you’ve come to the right place. Getting a loan for a used car is an easy and stress-free process with Island FCU.

What is a Used Car Loan?

A used car loan is a financial arrangement designed for anyone looking to purchase a pre-owned vehicle. It involves borrowing money from a lender, like Island Federal, which is then used to buy the car. The borrower repays this amount over a set period, typically with interest. Unlike new car loans, used car loans often come with higher interest rates and shorter repayment terms due to the depreciated value of the vehicle. Personal loans, which may be unsecured, differ from used car loans in the sense that the latter usually require the car itself as collateral, securing the lender’s investment. At Island Federal, we understand that higher interest rates, shorter repayment terms, or the need for collateral could be daunting for many consumers. We are in a unique position to offer our members the same interest rate and loan terms for financing most used car as a new auto loan. Check out the used car loan rates page or get in touch to take advantage of this offer today!

Assess Your Financial Situation

Before you make any sort of large financial decision, it’s important to assess your financial health. Seeking a loan is a great option if you’re financially stable enough to repay it in a timely manner. If you don’t have the income to repay the loan on the agreed upon terms, however, you may find yourself in serious financial trouble. Before getting a used car loan, you should gather these important financial documents so that you have a clear picture of your current financial situation:

  • Bank Statements: These provide a snapshot of your cash flow, showing your income, expenses, and spending habits. It’s a good idea to pull bank statements across multiple months so that you can average your monthly expenses and get a better sense of how a used auto loan would fit into the picture.
  • Credit Reports: These reports give insights into your credit history, debts, and how effectively you manage credit. Checking for inaccuracies is also crucial for maintaining a good credit score, which can affect your ability to get a used auto loan.
  • Budget Documents:  Ideally, you’d already have a document outlining your current budgeting efforts. A detailed budget helps you understand where your money is going and whether you are living within your means and are able to afford new expenses.
  • Investment Documents: These include details of stocks, bonds, mutual funds, and other investments, showing how your assets are performing. Having an idea of how your assets are performing helps you make more informed decisions when it comes to taking on new financial expenses, as your investments can serve as a safety net in the case of an emergency.
  • Loan Statements: Always keep track of other loans you’re currently paying off before diving into a new loan. Whether it’s a mortgage or student loans, you should always have an idea of how far along you are into repaying your current debts.
  • Retirement Account Statements: These documents show the current value of your retirement savings and whether you’re on track to meet your retirement goals. Adding a used auto loan payment to your monthly expenses may affect your ability to stay on track for retirement goals, which is something that you need to take into consideration.
  • Insurance Policies: Reviewing your insurance (health, life, property, etc.) ensures you have adequate coverage and are not overpaying for premiums. Adjusting your current insurance policies may free up the extra cash you need to afford a used car loan.
  • Recent Tax Returns: These provide a comprehensive overview of your annual income, tax liabilities, and potential for tax planning strategies.
  • Pay Stubs: These are essential for verifying income and understanding your net income after taxes and other deductions.
  • Net Worth Statement: A summary of all your assets and liabilities, providing a clear picture of your overall financial position.


Once you’ve compiled and reviewed all of these documents, obtaining a used car loan will be a much easier process to comprehend. You’ll have a realistic understanding of your budget, as well as a clear idea of where your credit score currently stands. A good credit score will positively impact your overall loan terms, making the loan easier to repay. Some ways you can work to improve your credit score include:

  • Pay Bills on Time: Consistently paying all your bills, including credit cards, loans, and utilities, on time is crucial. Late payments can significantly harm your credit score.
  • Keep Credit Card Balances Low: Aim to use a small percentage of your available credit. High credit utilization can negatively impact your score, so it’s advisable to keep balances well below your credit limits.
  • Maintain Old Credit Accounts: The length of your credit history affects your score. Keeping older credit accounts open, even if you don’t use them frequently, can positively impact your score. Just be sure to keep track on which of your cards of an annual fee.
  • Limit New Credit Inquiries: Each time you apply for a new line of credit, it can cause a small, temporary drop in your score. Limiting the number of new credit applications can help maintain your score.
  • Regularly Monitor Your Credit Report: Check your credit reports regularly for errors or fraudulent activities. Dispute any inaccuracies you find with the credit bureau, as these can negatively affect your score.  To keep your information safe, use a trusted credit report sources, like the one provided by your credit union.


Implementing these strategies consistently over time can lead to an improved credit score, making it easier to secure loans and credit in the future.

Buyout Your Lease with a Used Car Loan

A used car loan can be a strategic option for financing the purchase of your leased vehicle, commonly known as a lease buyout. This process involves several steps:

Assess the Buyout Price

First, determine the buyout price of the leased vehicle. This price is typically specified in your lease contract and includes the residual value of the car at the end of the lease term plus any additional fees.

Determine Loan Needs

Once you know the buyout price, calculate how much money you need to borrow. This will be the amount of the used car loan you’re seeking. Consider any down payment you can make to reduce the loan amount.

Application Process

When applying for a used car loan, lenders will assess your credit score, income, and debt-to-income ratio to determine your eligibility. You’ll need to provide financial documents, such as pay stubs and bank statements, to support your application.

Loan Approval and Payment

Upon approval, the lender will directly pay the buyout amount to the leasing company or provide you with the funds to do so. Subsequently, you will start making monthly payments to the lender as per the loan agreement.

For a more detailed guide on how a lease buyout works, you can check out this article here.

Research Lenders and Loan Options

When looking to finance a used car, it’s essential to explore various lending sources. Each will offer unique benefits, which may or may not be useful to you depending on your specific situation. Understanding the key components of loan options, like interest rate, term length, fees and penalties, and special conditions, can help you make an informed decision on the best choice for your needs. Here are some pros and cons of the main lending options available:

Traditional Banks


  • Wide range of loan products.
  • Generally offer online services and a broad physical presence.


  • Typically have higher rates
  • Stricter credit requirements.
  • Can be less personal in customer service.

Credit Unions


  • Typically offer lower interest rates and better terms.
  • More personalized service.
  • May have more flexible credit requirements.


  • Membership requirements limit who can borrow.

Online Lenders


  • Convenient online application and approval process.
  • Often competitive interest rates.
  • Ideal for savvy internet users and those looking for quick decisions.


  • Lack of personal, face-to-face service.
  • Sometimes higher fees or rates, depending on credit score.

Dealership Financing


  • Convenient as it’s integrated with the car buying process.
  • Offers promotional financing options, sometimes with very low rates.


  • Rates may be higher than other options.
  • Less room for negotiation on loan terms.

For an in-depth comparison of auto loans from credit unions versus banks, check out this link here.

Compare Loan Terms and Offers

Before making any final decisions, it’s important to critically evaluate the different loan terms and offers available to you. Comparing loan terms and offers will ensure that you find a used car loan that meets your needs and fits your budget. When looking at different lenders, pay attention to:

  • Interest Rates: Look at the overall Annual Percentage Rate (APR). APR includes interest and other fees, giving a more accurate picture of the loan’s true cost. Also identify whether the loan has fixed rates or variable rates. This will determine whether your loan will be unchanging over the agreed upon term, or subject to fluctuation depending on market conditions. Gathering quotes from multiple lenders is always a good idea.
  • Repayment Terms: Compare the loan duration offered by different lenders. A shorter loan duration will have higher monthly payments, usually with less interest, whereas a longer loan agreement will have shorter monthly payments with more interest compiled over time.
  • Fees, Charges, and Prepayment Penalties: Many loans come with application fees, processing fees, and late payment charges. Be sure you look at the fine print across multiple loan agreements so that you don’t end up paying more upfront than you’re able to. In certain cases, lenders may include a fee for paying off your loan earlier than the agreed upon term, so make sure you look into any penalty clauses as well.

Get Preapproved for a Loan

The preapproval process for a loan involves a preliminary assessment by a lender to determine your creditworthiness and the loan amount you qualify for. This step, typically based on your credit score, income, and debt-to-income ratio, gives you a clear idea of your budget and strengthens your position as a borrower in the eyes of lenders. Commonly required documents include:

  • Proof of income (generally a pay stub)
  • Bank statements
  • Employment verification
  • Identification documents

When submitting these documents, ensure accuracy and completeness to facilitate a smooth process. Once you receive preapproval offers, compare them by looking at the interest rates, loan terms, and any additional fees or penalties. This comparison helps you understand the total cost of each offer, allowing you to make an informed decision.

Find the Right Used Car

In order to find the perfect used car, you must take into account a combination of your personal needs and preferences, information gained through thorough research, and advantages identified through diligent inspection. Here’s a guide to assist you in this process:

Determine Personal Needs and Preferences

Assess what you’re looking for in a used car based on factors like size, type (SUV, sedan, hatchback), fuel efficiency, safety features, and specific purposes (commuting, long drives, camping, hauling, etc.). Consider aspects like the number of passengers, cargo space, and your driving environment (urban, rural, climatic conditions).

Research Market Values

Cross reference online platforms and resources to research the average market value of the cars you are interested in. Websites like Kelley Blue Book or Edmunds can provide insights into the fair market price based on the car’s make, model, year, mileage, and condition.

Inspect the Car’s Condition:

  • Physical Inspection: Examine the car’s exterior and interior for any damage or wear. Check the engine, brakes, tires, and lights.
  • Test Drive: Take the car for a test drive to assess its performance, handling, braking, and comfortability.
  • Professional Inspection: Consider getting a pre-purchase inspection by a trusted mechanic to identify any hidden issues.

Review the Car’s History

  • Service Records: Ask for the vehicle’s service records to see if it has been regularly maintained. The car that has been most regularly serviced will likely be the best choice out of your options.
  • Accident History: Use the Vehicle Identification Number (VIN) to check for any past accidents or insurance claims.
  • Ownership History: Determine the number of previous owners and how the car was used (personal, lease, rental).

If you follow these pointers while shopping for a used car, then you’re sure to select a car that meets your needs, offers good value, and is in a condition that won’t lead to unexpected expenses down the line.

Finalize the Loan and Purchase

Once you’re done researching lenders, loans, and cars and you’ve found a combination that works perfectly for your needs, it’s time for you to finalize your loan and initiate the car purchase. To finalize your loan, you’ll first need to provide your chosen lender with all necessary documentation, like income proof and vehicle information. It’s crucial to thoroughly understand the loan agreement, focusing on terms, fees, and penalties, and clarify any doubts before signing. For the final purchase, finalize the deal with the seller, ensuring the loan amount is correctly disbursed, sign the purchase contract, and take care of vehicle registration and insurance.

Maintain and Repay Your Loan

Once you’ve taken possession of your car, make sure to stick to the repayment schedule to maintain a healthy credit score. Some tips for managing your loan and ensuring you don’t miss any payments include:

  • Create a Repayment Plan: Cross reference your monthly earnings with the loan payment you agreed upon and make repaying this a top priority.
  • Budget for Regular Payments: Look at other expenses you have and calculate whether or not they are essential to your monthly budget. You may need to adjust your lifestyle to ensure that you save money and budget for your loan payments before you allow for any sort of frivolous spending.
  • Explore Refinancing Options: Once you’ve put a dent into your repayment plan, you could consider refinancing for better interest rates. If you have other debts to pay off, you could consider looking into debt consolidation.

Final Thoughts

So, can you finance used cars? Yes! Buying a used car doesn’t have to be financially crippling. With proper research and the right lender and terms, you can get a used car loan that works for your monthly budget and allows you to get the car that you both want and need. With careful planning and informed decisiveness, securing a used car loan can be a positive and successful experience. As long as you’re diligent in your research, honest with your budget, and able to find a trustworthy lender, then you’re sure to find a used car loan that fits your unique circumstances.

Island Federal Used Auto Loans

Island Federal Credit Union offers a wide range of loans for used cars. Our offerings are notable for competitive interest rates, with a current rate as low as 6.99% APR for up to 72 months on vehicles from 2017 or newer. We provide 100% financing on pre-owned vehicles, and even have a First Time Car Buyer Program that is perfect for individuals who need guidance throughout the auto financing process. Our pre-approval process is seamless and straightforward and our Lease Buyout Program is perfect for those looking to buy their currently leased vehicle without any stress. At Island FCU, we want to make your used car loan experience as easy as possible so that you can get the vehicle you need and hit the road. Contact us today to learn more about how we can help you finance your perfect used car.