Unless you live in a big city with extensive and reliable public transportation, you probably need a car to get to work, run errands and, well, just function.

By now you probably know that buying a used car over a new one can save you a lot of money. Today, however, your savings may be less than you expected.

Used car prices are rising

In the past 12 months, used car prices have risen nearly 10%, the largest increase in over a decade according to the US Consumer Price Index.

The reason? Limited supply and high demand. Many people stopped using public transport for safety reasons during the pandemic and rushed to buy cars instead. In fact, Cox Automotive estimates that the demand for used vehicles has doubled since March 2020.

In addition, many Americans struggled with lost income and some levels of financial uncertainty during the pandemic. Because of this, consumers have preferred used cars to new ones because of the savings that come with it, and now there is not much on offer.

How to finance a used car

If you want to buy a used car but can’t pay for one right away, you need to finance it. And you have options in that regard.

First, you could take out a personal loan to buy a car. Personal loans allow you to borrow money for any reason and generally come with competitive interest rates.

Second, you could get a regular car loan where the vehicle you are buying is used as collateral for that loan. In contrast, personal loans are unsecured – there is no specific asset used as collateral for them.

So what’s the better choice?

Well, a personal loan can have a shorter repayment period than a traditional car loan, so you have higher monthly payments. If you can swing these payments it may not be a problem and you may be able to reduce that debt sooner.

But if you are already breaking your budget just to buy a used car, then a traditional car loan may be a better choice.

Also, you may be eligible to borrow more money with a regular car loan because, as mentioned earlier, that loan is backed by a specific asset – the car you are buying.

Of course, whichever type of loan you choose, it is a good idea to compare interest rates so that you get the best deal in the end. And if you can work on improving your credit before you apply, you may be able to save some cash on the interest.

Unfortunately, used cars are more expensive today than they used to be. If you need a vehicle, carefully consider your financing options so that your car fits well into your budget and does not weigh on it.