When is a car too old to finance? – Jalopnik

With the price of an average new car being $50,000, something fresh and shiny from the factory isn’t in store for everyone. But used cars aren’t cheap either, with the typical used car selling for nearly $27,000, according to AutoGurus. For many, this means getting a car loan, even if you’re buying a used car. Of course, buying an older vehicle can make financing more manageable, but some lenders are more specific about which vehicles are eligible for loans.

When I was selling cars, the banks we worked with had a hard limit of ten model years for financing (and mileage limits also came into play, with the limit being about 100,000 to 120,000 miles). Some lenders still apply the ten-year limit. That said, cars last longer – the average car on the road is almost 13 years old – and even vehicles this age may be out of reach for cash-only buyers. Something as mundane as an accident-free 2012 Toyota RAV4 with reasonable mileage will cost between $10,000 and $12,000. Finance companies and dealers still want to do business, even if it means going beyond that ten-year standard. As a result, it is not difficult to find lenders offering loans for vehicles that can be up to 20 years old. Credit unions, such as PenFed, are good options.

Of course, there may be hurdles to overcome, such as vehicle condition, mileage limit and achieving clean titles. Lenders may also have minimum loan amounts, typically $5,000 or $10,000. Age and condition are important because the bank wants to know that it can get its money back if you default on the loan. In other words: the car is collateral.

Auto lenders have become more flexible out of necessity. The ready availability of insurance data (appraisals, vehicle history, market conditions, etc.) makes it more feasible to expand into financing older cars. However, lenders still have underwriting standards that must be met, such as the Loan-to-Value (LTV) ratio. The LTV is a calculation of the amount of the loan compared to the value of the car. For example, a $15,000 loan on a $20,000 car has an LTV of 75%.

What is considered an acceptable LTV for loan approval is up to the financing company. Your credit score is also part of the equation; You may need to make a larger down payment to achieve a lower LTV, or you may qualify for a loan with an LTV of over 100% or higher. Different lenders will have different standards along with different loan terms. Seven-year auto loans are becoming more common for newer vehicles, which may be available for some older models depending on the financing company.

It’s worth bringing classic cars into the conversation. They are obviously older, but may still qualify for financing. The definition of what counts as ‘classic’ may differ per lender, but 20 or 25 years is often the starting point. In this case, collectability and resale value play a role in calculating the loan. Standard factors applied to daily drivers, such as depreciation, matter less. There are specialist lenders in this area, such as Woodside Credit and Broad Arrow, but mainstream financial institutions such as PenFed Credit Union also offer classic car loans.

There may be an option if you want to buy an older vehicle but can’t (or don’t want to) take out a standard car loan. Maybe the vehicle is outside normal lending parameters, or the lender’s terms don’t meet your needs (like the guy with a 27.9% 68-month car loan). If paying in cash is not possible, a personal loan may be the solution. The age and condition of the vehicle do not matter; this is unsecured financing where the vehicle is not used as collateral.

The trade-off here is that you must have good credit, as there is no collateral for the bank to take back in the event of default. You can expect a higher interest rate compared to regular car financing. The good news is that you don’t need a down payment. Truist Bank is smartly deploying its LightStream financing to car buyers, emphasizing that there are no restrictions on age or mileage. Below that lies an unsecured personal loan.

Most banks and credit unions offer personal loans, so it’s worth shopping around for the best terms and rates. There are also online lenders. Take advantage of pre-qualification offers so you can compare options from different lenders through soft loan applications so you can avoid a serious hit to your credit until you’re ready to sign for the loan.