Why do people buy used rather than new? Maybe they looked at the numbers compiled by the National Automobile Dealers Association, a group representing new-car dealers who say that the average new car selling price has reached $17,100, up from $16,050 a year ago, while the average used car selling price is at $8,300.

A savings of roughly $8,000 certainly is one good reason to purchase a used car rather than a new one. But then, you have to look at what it costs to finance the $8,000 less expensive used car vs. the $8,000 more expensive new car.The average new car financing rate is 9.8 percent, but the used car rate is 13.7 percent, according to the American Automobile Manufacturers Association. So the used car costs less, but the financing is substantially more than on a new car.

But then, because the new car costs more, even though you are paying a lower financing rate, you are financing a greater amount of money. The average monthly payment on the loan is $313.30 for a new car, $250.97 for a used car.

Speaking of loans, the Chicago Department of Consumer Services has compiled a handy checklist for prospective used car buyers to examine before the purchase when considering taking out a loan.

For example:

- Loans for used cars are usually for shorter periods - 12, 24 or 36 months - than for new cars - 24, 36, 48 or 60 months - and therefore usually require a larger down payment because the lender will only finance a percentage of the total cost, usually 80 percent or less.

That's why, when you call a bank or savings and loan to determine what it will lend you on the used car purchase, the amount they quote you typically is 80 percent of the car's actual value.

So if the seller is asking $5,000 and the bank says it will lend you $4,000, it's not that the car isn't worth $5,000, it's that the lending institution will not make a loan on the full value.

Interest rates charged for used car purchases normally are higher than for new car purchases, understandably because part of the useful life of the machine is already behind it. You'll probably find the older the used car you want to buy, the higher the rate of interest. The lending institution is trying to cover its tail.

- Each lender, whether a bank, credit union, savings and loan or car dealer, has different interest rates and/or finance charges. So you must compare all the figures for each proposal, including the sale price, the amount of the loan, the interest rate (which always must be stated in annual percentage rate, or APR), the number of monthly payments, how, when and where payments are to be made, and the total contract amount, which means the loan plus the amount of interest.

Shop lenders. Terms differ, and by spending a little time, you could save a lot of money. If you are willing to visit three or four used car lots, you should be willing to call more than one lender to determine the best terms being offered.

- Most lenders require the total loan to be covered by collateral, usually using the used car itself as collateral.

- Some lenders require a down payment, often 20 percent or more. Your trade-in often serves as the down payment, but you may be required to make the payment in cash.

- To protect the consumer, lending institutions must provide the consumer with complete loan information in writing before you sign any loan contract.

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The money you borrow must be stated in two ways - the dollar amount and the actual annual percentage rate of the loan.


- Read all the information carefully so that you know who is lending you the money, who holds the title to the used car and what your rights are if you default on the payments and the car is repossessed.

Also, you want to know if there is any penalty or added payment should you decide to pay the loan back early and what amount of additional interest charges, if any, you are liable for if you should pay the loan off early.

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