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📂 Category: Car Loans,Loans,Personal Finance
✅ Main takeaway:
Key takeaways
- Chase, Capital One, and Bank of America are among the lenders that offer loans for some older used cars.
- Most lenders restrict the types of used vehicles they will finance, based on mileage and the age of the vehicle.
- Other factors lenders consider include the loan amount, loan-to-value ratio, and type of vehicle being financed.
- You can increase your chance of approval by increasing your down payment, using a co-signer, and finding out if you qualify beforehand.
Lenders may restrict financing for certain types of used cars based on the vehicle’s age, mileage, seller, and loan amount. This is because they often struggle to determine the exact value of used vehicles. In this article, find out about used car financing restrictions, approval odds, and lenders who can help you get financing.
Lenders who will finance an older used car
The criteria lenders use to finance used cars can vary. Lenders may have specific requirements, including vehicle age and mileage limits, according to Investopedia’s research into the auto loan industry. The table below shows the maximum age and mileage restrictions for nine popular auto lenders.
| Lender | Maximum mileage | Maximum age |
|---|---|---|
| ally | 120,000 miles | 10 typical years |
| Bank of America | 125,000 miles | 10 calendar years |
| Capital One | 120,000 miles | 10 typical years |
| Chasing | 120,000 miles | 10 calendar years; 5 calendar years (Tesla) |
| First Tech FCU | 150,000 miles | 10 typical years |
| We’re running out | 125,000 miles | Not available; No more than five years old and less than 60,000 miles for an 84-month loan |
| BNC Bank | 100,000 miles | Nine years |
| cocky | 140,000 miles | 13 years old |
| USA | nothing | nothing |
Used car financing restrictions
Although underwriting policies can vary by lender, the following are the most common used car financing restrictions in the industry:
Maximum vehicle age
Older vehicles pose a greater risk and potential for loss, as the resale value of used cars typically declines as they age. Since lenders use the car as collateral for the loan, they are at risk if the borrower defaults and the lender needs to repossess the car and resell it to cover its losses. As a result, the older the car, the more difficult it is to get financing for it.
Maximum mileage
Just like the age of a car, mileage indicates wear and tear on a car. High mileage means that the car is subject to depreciation and is at risk of needing more repairs than a car with lower mileage.
Amount to finance
Although it’s not always explicitly stated, some lenders have limits on the amount they’ll loan you for a used car, because it’s often difficult to assess its value. This limitation may also stem from mechanical issues and the overall risks associated with financing used vehicles.
Loan-to-value (LTV) ratio.
The loan-to-value ratio helps lenders manage risk. A high ratio makes it risky for the lender because if the borrower defaults, the lender will not be able to recover the entire loan balance after the car is sold, especially when repossession costs are included.
Vehicle type
Some lenders impose financing restrictions on certain types of vehicles, which may be due to reliability issues and/or depreciation concerns. For example, Chase does not finance exotic vehicles, motorcycles, or recreational vehicles.
insurance
Lenders generally require you to purchase full coverage auto insurance for the life of the loan for your used car.
Borrower requirements
Remember, lenders also consider your ability to repay the loan before approving you, including the following factors:
important
Credit unions may offer more flexibility for used car loans than banks and dealerships, and may work with borrowers who have lower credit scores and those who are building their credit.
Tips to improve your chances of approval
Consider the following tips to increase your chances of getting approved for a used car loan:
- Improve your credit score: If you have a low credit score, improve it before applying by paying your bills on time and maintaining low balances. A higher credit score may offer you better loan terms, such as a lower interest rate, saving you money.
- Increase down payment: Saving more money lowers your loan balance, your monthly payment, and the amount you have to pay in interest. The lender may view you as a less risky borrower and may consider giving you a shorter loan term.
- Get a co-signer: Using a co-signer, especially one with a high credit score, can help you secure great loan terms, such as a lower interest rate and a shorter loan term. Remember that you will have to keep track of your payment. If you don’t, your co-signer is legally liable for the loan if you default.
- Find out if you’re pre-qualified: Prequalification does not affect your credit score, and can give you an idea of how much you can afford each month and what type of car you can afford. Prequalification also gives you the ability to negotiate with agents since you know your budget.
- Research multiple lenders before applying: Start with your current financial institution and consider other alternatives, such as other banks, credit unions, and online lenders. If you receive offers in the mail or online, review them and compare prices and terms to determine which one best suits your needs, allowing you to make an informed decision.
Bottom line
Buying a used car may seem like a wise choice for several reasons. The purchase price, insurance and taxes are often less expensive than newer models. However, if you are financing a used car, you may face certain restrictions, including the mileage and age of the car. Do your research before shopping and applying for financing, especially if your heart is set on a set of wheels that are a few years older.
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