Can You Finance a Used Car?

Yes — and most people do. The majority of used car purchases in the United States are financed, not paid in cash. Whether you're buying from a dealership, a private seller, or shopping online, used car financing is widely available from banks, credit unions, online lenders, and dealership finance departments. If you've been wondering whether financing a pre-owned vehicle is even an option, the short answer is: absolutely.

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How Used Car Financing Works

Financing a used car works the same way as financing a new one. A lender provides the money to purchase the vehicle, and you repay that amount over time with interest through monthly payments. The vehicle serves as collateral for the loan, which means the lender has a lien on the title until the loan is paid in full.

The main difference between new and used car financing comes down to interest rates and loan terms. Because a used car has already depreciated, lenders see it as a slightly higher risk than a brand-new vehicle. That typically means interest rates on used car loans are a bit higher than new car rates — usually 1% to 3% more, depending on the lender, the vehicle's age, and your credit profile.

That said, used car buyers often come out ahead financially. Even with a slightly higher rate, the lower purchase price of a used vehicle usually means a lower monthly payment and less total interest paid over the life of the loan compared to financing a more expensive new car.

Types of Used Car Loans

There are several ways to finance a used car. Each has its pros and cons, and the best option depends on your situation.

Dealership Financing

Indirect Lending • Multiple Lenders

When you finance through a dealership, the dealer submits your application to multiple lenders simultaneously and brings back the best offers. This is called indirect lending, and it's the most common way to finance a used car. You get the benefit of lenders competing for your business without having to apply separately at each one.

One application, multiple lender offers
Handle everything at the point of sale
Often the most competitive rate available
Works for all credit types

Bank Loans

Direct Lending • Single Lender

You can get pre-approved at your bank before visiting a dealership. This gives you a set rate and budget to work with. The downside is that you're limited to one lender's rates and terms, and you need to go through a separate application process before you even start shopping.

Know your rate before you shop
Limited to one lender's offer
May require an existing relationship
Separate trip and application process

Credit Union Loans

Member-Based • Often Lower Rates

Credit unions are member-owned and often offer lower interest rates than traditional banks. If you're already a member of a credit union, it's worth checking their auto loan rates. Keep in mind that credit unions may have stricter vehicle requirements regarding age and mileage.

Often competitive rates for members
More personalized service
May have vehicle age/mileage limits
Must be a member to apply

Online Lenders

Digital-First • Convenient

Online auto lenders let you apply from home and often provide quick decisions. They can be a good option for rate shopping, but the process is less streamlined than financing at the dealership. You may also need to coordinate funding and paperwork between the lender and the seller.

Apply from home, quick decisions
Good for comparing rates
May require extra coordination at purchase
Some specialize in specific credit profiles

When a dealership submits your application to multiple lenders at once, those lenders are competing for your business. That competition is how you get the best rate — without doing the legwork yourself.

What Lenders Look at When You Apply

When you apply for a used car loan, lenders evaluate both you as a borrower and the vehicle you're buying. Understanding these factors can help you prepare before you apply and put yourself in the best position for approval and a competitive rate.

Your Credit Score

Your credit score is the single biggest factor in determining your interest rate. Higher scores qualify for lower rates. But even if your score isn't great, financing is still available — rates will just be higher to reflect the additional risk to the lender.

Income & Debt-to-Income Ratio

Lenders want to see stable income and a manageable level of existing debt. Your debt-to-income ratio — the percentage of your monthly income that goes toward debt payments — helps lenders decide how much car you can comfortably afford. Lower is better.

The Vehicle Itself

Lenders evaluate the vehicle's age, mileage, and book value. Newer used cars with lower mileage are easier to finance because they hold their value better and represent less risk. Older, higher-mileage vehicles may have fewer lending options or require shorter loan terms.

Loan-to-Value Ratio

Lenders compare the loan amount to the vehicle's current market value. If you're financing more than the car is worth (high LTV), it's riskier for the lender. Bringing a down payment or having a trade-in lowers your LTV and can help you qualify for better terms.

Used Car Rates vs. New Car Rates

Used car interest rates are typically higher than new car rates. That's not a penalty — it's a reflection of the vehicle's position in its depreciation curve. A new car has its full useful life ahead of it. A used car has already lost some value, which means the collateral is worth less to the lender.

The difference is usually modest. Depending on the lender and your credit profile, you might see a spread of 1% to 3% between new and used rates. Here's a general idea of what to expect:

Credit Profile	New Car Rate (Typical)	Used Car Rate (Typical)
Excellent (750+)	4.5% – 6.5%	5.5% – 7.5%
Good (700–749)	6.0% – 8.0%	7.0% – 9.5%
Fair (650–699)	8.0% – 11.0%	9.5% – 13.0%
Subprime (below 650)	11.0% – 16.0%	13.0% – 20.0%+

*Rates are approximate ranges and vary by lender, loan term, vehicle, and individual credit profile. Rates shown for illustration purposes only.

Even with a slightly higher rate, the total cost of financing a used car is often less than financing a new one. A $22,000 used car at 7.5% over 60 months costs significantly less in total interest than a $38,000 new car at 5.5% over 72 months. The lower purchase price is the biggest driver of savings.

How the Vehicle Affects Your Financing

Not every used car qualifies for the same financing. Lenders set guidelines based on the vehicle's age, mileage, and value. Understanding these guidelines helps you know what to expect before you apply.

Vehicle Age

Most mainstream lenders finance vehicles up to 10–12 years old. Beyond that, options narrow. Specialty lenders and some credit unions may finance older vehicles, but terms are typically shorter.

Mileage

Higher-mileage vehicles are harder to finance because they're more likely to need repairs and lose value faster. Many lenders cap financing at 100,000–120,000 miles, though some will go higher.

Book Value

Lenders won't typically lend more than the vehicle is worth. If a car's book value is low relative to the asking price, you may need a larger down payment to bridge the gap and keep your loan-to-value ratio in line.

What About Loan Terms for Older Vehicles?

The maximum loan term available depends partly on the vehicle's age. A newer used car (1–3 years old) can often be financed for up to 72 or even 84 months. A 7-year-old vehicle might max out at 60 months. A 10+ year-old vehicle might be limited to 48 months or less.

This makes sense from a lending perspective: the lender doesn't want you making payments on a vehicle long after it's lost most of its value. Shorter terms mean higher monthly payments, but you also pay less total interest and build equity faster.

A good rule of thumb: try to finish paying off the loan before the vehicle would reasonably need major repairs or replacement. Matching your loan term to the vehicle's expected remaining lifespan keeps you in a healthy financial position.

Down Payments on Used Cars

A down payment reduces the amount you need to finance, lowers your monthly payment, and can improve your chances of approval. For used cars, lenders generally like to see 10% to 20% down, though the actual requirement depends on your credit and the vehicle.

Some buyers can get approved with zero down, especially if they have strong credit and the vehicle's value supports the full loan amount. Others may need to bring more down — particularly with lower credit scores or higher-priced vehicles.

Your down payment can come from cash, a trade-in, or a combination of both. Trading in your current vehicle is one of the easiest ways to put money down because the equity is applied directly to your new purchase.

Why a Down Payment Helps

Lowers your monthly payment
Reduces total interest paid over the life of the loan
Improves your loan-to-value ratio, which can qualify you for a better rate
Reduces the risk of being "upside down" (owing more than the car is worth)
Increases your chances of approval, especially with challenged credit

Have a vehicle to trade? Use our trade-in valuation tool to get an estimate of what it's worth before you visit.

How to Get the Best Rate on a Used Car Loan

You can't always control interest rates, but you can put yourself in the best position to qualify for the lowest rate available. Here's how.

Know Your Credit

Check your credit report before you apply. Fix any errors and pay down existing balances if possible. Even small improvements can move you into a better rate tier.

Get Pre-Approved

Getting pre-approved gives you a baseline rate to compare against. Apply at your bank, credit union, and the dealership to see who offers the best terms.

Bring a Down Payment

Even a modest down payment improves your LTV ratio and signals to lenders that you're a serious, lower-risk borrower. Cash or trade-in equity both count.

Let Lenders Compete

Financing through a dealership with multiple lending partners means your application goes to several lenders at once. Competition between lenders drives your rate down.

Special Situations: Bad Credit, No Credit & First-Time Buyers

One of the most common misconceptions about used car financing is that you need perfect credit to get approved. That's not true. Lenders who specialize in subprime and non-prime lending work with borrowers across the credit spectrum every day.

Bad Credit

Past bankruptcy, repossession, collections, or late payments don't automatically disqualify you. Subprime lenders specialize in these situations. Rates will be higher, but approval is often possible with stable income and a reasonable down payment.

No Credit History

If you've never had a loan or credit card, you don't have bad credit — you have no credit. Some lenders have specific programs for thin-file borrowers. A co-signer, proof of steady income, and a down payment can all help you get approved.

First-Time Buyers

Buying your first car is a big step. Many lenders have first-time buyer programs designed for people just starting out. A steady job, proof of residence, and a reasonable down payment go a long way toward getting you approved and building your credit history.

No matter where your credit stands, the worst thing you can do is assume you won't get approved and not apply. Every situation is different, and lenders who work with dealerships like Frankman Motor Company see the full picture — not just a number.

Why Finance Your Used Car at Frankman Motor Company

At Frankman Motor Company, financing is one of the things we do best. Our finance department is built around one goal: getting you approved at the best rate available for your situation. Here's how we do it.

Going It Alone

Apply separately at multiple banks and lenders
Compare rates and terms on your own
Coordinate paperwork between lender and seller
Limited options if your credit is challenged
No one advocating on your behalf

Financing at Frankman

One application goes to our entire lender network
Multiple lenders compete, driving your rate down
Everything handled in-house — finance and drive same day
Specialists in bad credit, no credit, first-time buyers
Kevin and Nate walk you through every option personally

Meet Your Finance Team

When you finance at Frankman, you'll work directly with Kevin Marlow, Finance Director or Nate Russell, Finance Manager. They manage relationships with our entire lender network — banks, credit unions, and captive lenders — and they'll match your application with the lender most likely to give you the best deal. Whether your credit is excellent, challenged, or somewhere in between, Kevin and Nate have seen it before and they know how to get it done.

No surprises, no pressure. They'll explain every option, answer every question, and make sure you understand your loan before you sign anything.

Start the Process Online

You don't have to wait until you're at the dealership to get started. Use our free online tools to estimate payments, check your buying power, and submit a finance application from your phone or computer.

Apply for Financing

Submit your application online in minutes. Our finance team will review it and reach out with your options.

Payment Calculator

Plug in a price, down payment, and estimated rate to see what your monthly payment would look like.

What's My Buying Power?

Find out how much vehicle you can afford based on your budget, down payment, and estimated credit tier.

Used Car Financing FAQs

Yes. Dealerships are one of the most common places to finance a used car. Most dealerships work with a network of lenders and can submit your application to multiple banks and credit unions at once to find you the best rate available. At Frankman Motor Company, our finance team handles the entire process in-house.

There's no single minimum score required. Lenders across the credit spectrum offer used car loans — from prime lenders serving borrowers with 700+ scores to subprime lenders who work with scores in the 500s or lower. Your credit score will affect your interest rate, but it doesn't determine whether you can get financed at all. We work with all credit types at Frankman.

Typically yes, by about 1% to 3%. Used cars have already depreciated, so lenders see them as slightly higher risk compared to new vehicles. However, because the purchase price of a used car is lower, you'll usually pay less total interest over the life of the loan even with the higher rate.

A good target is 10% to 20% of the purchase price, though some buyers can get approved with less or even zero down. A larger down payment lowers your monthly payment, reduces total interest, and improves your chances of approval — especially if your credit isn't perfect. Your down payment can come from cash, a trade-in, or both.

Most mainstream lenders will finance vehicles up to about 10 to 12 years old. Some specialty lenders and credit unions will go older, but the loan terms will typically be shorter. At Frankman, we work with lenders who can finance a wide range of vehicle ages, and we also have options for classic and collector vehicles.

Yes. Many lenders specialize in working with buyers who have credit challenges — including past bankruptcy, repossession, or collections. Your interest rate will be higher than someone with excellent credit, but approval is often possible with stable income and a reasonable down payment. Our finance team at Frankman works with subprime lenders every day.

Both are valid options, but dealership financing has a built-in advantage: the dealer submits your application to multiple lenders at once, creating competition for your business. With a bank, you're limited to that single institution's rate. Many buyers find that their best rate comes through the dealership's lender network, not through their own bank.

Loan terms for used cars typically range from 36 to 72 months, depending on the vehicle's age and the lender. Newer used cars (1 to 3 years old) may qualify for up to 84 months. Older vehicles are usually limited to shorter terms — a 10-year-old car might max out at 48 months. Shorter terms mean higher monthly payments but less total interest paid.

Applying for a loan creates a hard inquiry on your credit report, which may cause a small, temporary dip in your score. However, if you apply at multiple lenders within a 14-day window, credit bureaus typically count those as a single inquiry. Making your loan payments on time actually builds your credit over the life of the loan.

Absolutely. Your trade-in equity is applied directly to the purchase price of the vehicle you're buying, which lowers your amount financed and your monthly payment. You can also combine trade-in equity with a cash down payment. Use our trade-in valuation tool to get an estimate before you visit.

Finance Office

(605) 250-5016

Location

26874 SD Highway 11
Sioux Falls, SD 57108

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Ready to Finance Your Next Used Car?

Apply online in minutes or call our finance office to talk through your options. Kevin and Nate are here to help — no pressure, no obligation.

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