When financing a used car, there are a few things to look out for to ensure you find the right lender for the vehicle and your personal circumstances. Although there are quite a few lenders in the market and most of them will finance used cars, you would need to consider that not every lender has the same criteria in regards to what used cars they would finance.
As the vehicle is being used as security over the loan, the restrictions put in place by lenders are usually to ensure that the car is sufficient security over the loan if they had to repossess the vehicle and sell it quickly to recover your loan in the event of a default.
There are some financiers that will flat out refuse to offer a secured car loan for any used car, and some will only allow finance for used cars that come from dealerships.
Of course, the older the vehicle is the harder it will be to sell on and is why financiers will generally restrict secured car loans to vehicles younger than 12 years old at the end of your loan term. That means if you applied for a loan today (2017) the oldest used car you could finance over five years would be one from 2010. These age restrictions at times can be negotiated on a case by case basis with some lenders, depending on the type of vehicle and on the overall strength of the application.
There are some financiers that will flat out refuse to offer a secured car loan for any used car, and some will only allow finance for used cars that come from dealerships. So it is always good to speak to a professional finance broker to ensure that you’re able to get the loan and interest rate you’re after on the vehicle you would like to purchase, otherwise you could face some big disappointment down the road.
Another important consideration when purchasing a used vehicle is the price. Financiers will compare the price you’re paying for your vehicle against the ‘market value’ of the vehicle as calculated by an industry guide, such as Glasses Guide or Redbook. If your vehicle is a particularly nice example, or has additional options or accessories fitted, and commands a premium price, you could find yourself paying a higher interest rate.
This is because financiers don’t consider the value of the accessories or the value of the vehicles condition when calculating your Loan-To-Value ratio, or LVR. A high LVR indicates a high risk that the financier wouldn’t be able to recover all of the money they loaned you if they had to repossess and sell the vehicle, and that will be reflected with a higher interest rate applied to your loan.
Used car loans have a little more variations than a brand new car loan, so it is always good to get assistance when finding the right lender that would suit your proposed purchase and your personal circumstances, to not only increase the chance of approval, but to also ensure the best deal for the situation is obtained.