There’s a lot to consider when buying a car. A number of decisions regarding the financial aspect of purchasing a car can be stressful. Here we take a look at some of the factors that go into securing an auto loan.
Most lenders care more about your credit history than they do about the actual number of your credit score. This is especially relevant for those that have credit that is less than perfect. Lenders will specifically look at your payment history on previous auto loans and if you have a good auto loan payback history, even if you’ve missed payments on other items you might still get a loan with a reasonable rate. Lenders gauge your financial responsibility, history, and reliability when assessing whether or not to fund a loan.
The size of the down payment you’re going to put down is important and many lenders will require one. The size is usually determined based on your credit history and credit score. In addition, paying a larger portion of your auto loan via a down payment sends a positive signal to a prospective lender.
It’s important to keep in mind that not every vehicle is lendable. Older model year vehicles and those with high mileage will have either higher rates or not be lendable at all, this is because they represent a higher risk to the lender. Most lenders stop lending on cars with 80,000 miles. The loan is calculated based on something called LTV, which stands for the Loan to Value. This is the size of the loan vs. the value of the vehicle (as determined by the bank, usually using industry standard values like Kelley Blue Book or Black Book). This caps the size of the loan; the better your credit, the higher the loan to value the lender will be willing to go.
The process may appear complex, but armed with knowledge is the best way to come out a winner. Check out additional information on how to finance a used car here.