For younger first-time buyers, used cars in New York and other states may be their most likely choice, but auto financiers say they may not recognize the benefits of taking out a car loan.

Capital One Auto Finance recently released the results of a survey of college students about to graduate, having asked them about their budget for their first vehicle purchase and how they planned to pay for it.

The company found that about two-thirds of the respondents were planning on buying used cars because of their budgets, but nearly half also want to pay cash, up 15 percent from last year.

“Buying a car is not an intuitive process and it can be intimidating for first time purchasers, especially in such a challenging economic environment,” said Sanjiv Yajnik, president of Capital One Auto Finance, but added that parents who have been through the process can help their children understand what options make the most sense in terms of paying for a car.

He says that graduates considering used cars in New York and other options should research and compare prices, as well as financing options, and be sure to know what their credit rating is prior to approaching a seller.

The loan market has tightened for new cars as dealerships have increased standards for loans, and it may make used cars in New Jersey or other states a more attractive option for buyers.

Experian Automotive says that independent dealers showed the largest gains in used car loans, with their share coming in at more than one-third of the market, as used car loans overall now represent more than two-thirds of all automotive financing.

“Banks, credit unions and captive finance companies appear to have tightened their lending criteria as they look to mitigate risk,” said Melinda Zabritski, Experian Automotive director of automotive credit. As lenders change terms, it “is pushing some consumers out of the new vehicle market and into the used vehicle market.”

The company says that the independents generally serve customers with lower credit scores find used cars in New Jersey and other locations.

That could be attractive to the increasing number of customers who have lower credit ratings, a group 6.3 percent larger compared to last year, according to Experian.

While a customer considering making a vehicle purchase may know how much of their monthly budget they can put towards a vehicle, making the calculations about loans, insurance and maintenance of a used car in New York could be difficult without a lot of scratch paper.

Edmunds.com offers used car reviews and pricing estimates, and says that a new service may limit some of the math required to go from a vehicle’s purchase cost to monthly expenses with a new affordability calculator based on the visitor’s zip code and desired monthly payment.

The application works backwards from there, using Edmunds’ estimate of used car values and maintenance costs to come up with a list of cars that could fit a potential buyer’s budget.

While basing costs of ownership on a monthly basis may help narrow down choices, one consumer advocate says it shouldn’t be the sole rationale in buying a car.

“Car-shoppers should be aware of their desired monthly payment, but not actually focus on it during negotiation,” said Philip Reed, Edmunds.com senior consumer advice editor. “Thinking of a vehicle purchase in terms of the ideal monthly payment can hide the bigger picture, and you never want to lose sight of the bigger picture when making a major purchase.”

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For those who are looking to buy used cars, or make other big ticket purchases, an online calculator may help those looking to make purchases understand how long it will take to finish paying off their choices.

The Time is Money Calculator allows buyers to input their annual salary, and the likely purchase price of an item in order to gauge how many weeks it will take to make enough money to pay it off.

“A price tag that reads ’44 hours of your time’ instead of ‘$500’ drives home what that purchase means to you,” says CEO Raj Khera. “The Time is Money Calculator helps you decide if it is really worth your time and money.”

The tool also incorporates federal and average state tax information to give people a better understanding of how much of their take-home pay would be used to pay off purchases such as a used car.

Since used car loans may require a loan with an interest rate up to 7 percent, according to a MyFox Tampa report, a calculator such as this may help buyers figure out what price point best fits their budget.

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A program being considered by several states and the federal government to offer thousands of dollars in vouchers for citizens who traded in vehicles during new car purchases may not benefit many Americans of modest means according to some critics.

The amounts being considered, $3,000 to $5,000, could provide some impetus in new car purchases, writes economist Steven Leavitt in a blog post for the New York Times, but he says that most people who own older cars are more likely to buy used cars as replacements.

He is joined by Aaron Lowe, vice president of government affairs for the Automotive Aftermarket Industry Association, who says that the program would “limit access to affordable transportations” for families who can’t afford new car prices, even with a voucher.

According to Comerica, a bank that offers new car loans, the average price of a new car was $29,000.

Although used car prices have risen slightly, according to a price index released by Manheim Consulting, a substantial number of cars were sold at prices between $8,000 and $12,000 at auction.

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The credit of many Americans has taken a hit during the current recession. But for those attempting to get a loan for the purchase of a used car, there are some steps to take.

According to Edmunds.com, one of the first things a used car buyer should do is check his or her credit report to make sure they can qualify for the best rates.

The higher your FICO score the more likely you are to get a loan – and the more likely you are to get a good deal. Although Edmunds says the national average FICO score is somewhere around 675, car buyers can improve their score if it falls below that level.

Lucy Duni, vice president of consumer education for TrueCredit.com tells the website that although it’s nearly impossible to drastically improve a credit score in a short period of time, making payments on time on outstanding debts can improve a credit score in just a few months.

Although lenders have become stingy with funding over the last year, it may soon be easier for everyone. Last week GMAC announced it would open new lines of financing to car buyers and would begin financing the purchases of people with credit scores below 620.

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It appears that it may soon be easier for used car buyers to get a loan as one of the biggest auto financers eases restrictions.

GMAC says it will be opening new lines of financing for used car buyers who have less than perfect credit. The company announced today that it would allow customers with credit scores below 620 to expand the number of borrowers the company lends to.

In addition, the lender says it will increase allowable advance rates for financing terms of 60 months or less.

Bill Muir, GMAC president, said the company hopes to increase the number of people it lends to and will boost funding over the next two months.

“GMAC now finances a broad spectrum of auto buyers, similar to traditional levels,” Muir said. “Through March, we financed over $2 billion in new and used retail auto contracts. Over the next 60 days, GMAC will make available at least $5 billion in order to increase the flow of credit to U.S. automotive customers.”

The company will also reduce rates for used car financing.

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In the past, used car buyers who fell behind on their loan payments were in fear of the repo man taking their car in the middle of the night but a new trend has many car owners unable to start their vehicles if they’re late on a loan payment.

According to the Wall Street Journal, in an attempt to cut down on loan defaults many used cars are being equipped with devices called disablers which can keep the car from starting if a loan payment is late.

Don Lavoie, president and CEO of Sekurus Inc., one of the companies that makes the disablers, told the paper that sales rose 25 percent last year and notes that these devices give people the same type of incentive to pay their loan as they have with their cell phone.

He told the paper that many people are hesitant to send a late payment for their cell phone because it may result in their service being turned off. With the disablers, making a car payment becomes more important to some used car owners.

One way many people are trying to save money each month on their car loans is by increasing its length. According to a recent report from Cars.com, the median length of car loans in the U.S. rose to 60 months in February.

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The state of the economy is causing many drivers with car loans to fall behind on payments, according to credit reporting agency TransUnion.

TransUnion’s report finds that the number of car owners whose auto loans have gone past 60 days due or more rose 8.9 percent in the fourth quarter of 2008.

States with the highest rates of delinquency were Mississippi (1.62 percent), California (1.46 percent) and Louisiana (1.37 percent). Bucking the trend were Alaska (0.19 percent), North Dakota (0.34 percent) and Wyoming (0.41 percent) which had the lowest rates.

Although the delinquency rate rose during the end of 2008, the amount Americans owed on car loans actually fell 0.2 percent according to the agency. The average amount of auto loan debt fell to $12,713 during the fourth quarter which TransUnion attributes to the decrease in lending from banks.

Because of the state of the economy, many Americans are turning to used cars to help make ends meet and save some money. But it appears many are also increasing the length of their loans in order to decrease monthly payments. A recent study from Cars.com found that the median length of car loans rose to 60 months in a February survey – up from 48 months in October.

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Statistics show that as the economy continues to struggle more Americans are buying used cars. But according to U.S. News & World Report, there are some things car buyers should consider before even heading out the door to look at cars.

One of the first things the magazine says to do is to sit down and come up with how much you can afford to spend. With that figure in mind, it suggests checking out the going prices of cars you’re interested in through the websites of the Kelley Blue Book or National Automotive Dealers Association.

The price of the car is not necessarily the only monetary factor to consider, as the news provider says car buyers should also consider the cost of insurance for the vehicle they’re looking at purchasing.

Even before heading to the car lot, the magazine also recommends doing some homework on the used car you intend on looking at. Checking websites like J.D. Power and IntelliChoice can give buyers more insight on the reliability and depreciation rate of the car of their choice.

One type of vehicle used car buyers may want to consider is a hybrid. Because of the drop in gas prices in recent months, the demand for these cars has waned which may give sellers more of a reason to offer incentives.

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