| With rising costs of automobiles, it is becoming increasing difficult to purchase a brand new car. Also for students it is far easier to buy used cars than a brand new one. A used car comes at a lower cost and its maintenance is also comparatively low.
A new car has high cost and when you add several other expenses of accessories, fuel, insurance etc. your expenses are going to take a plunge northwards. So when you buy a car, it is essential that you calculate your budget and understand your needs and then only take a decision.
You have the option of buying secured or unsecured loans to finance your car. Now when you buy a secured loan, then you will have to pledge your assets. Whereas unsecured loans can be obtained without any pledging of assets but have to be availed at a higher cost.
With used cars, the car value being less, getting pre-approval of loan is fairly easy. When you have a pre-approved loan, it means that you already have the money to buy your car. This will put you in a better condition than before and you will be able to negotiate in a better way.
But to get loans at an affordable rate, it is essential that you understand what factors are considered by the lenders, more so for a used car, to calculate your interest rates.
Loan to value (LTV)
LTV is a value that shows the amount you borrow as a percentage of the book value of the vehicle you are purchasing. The current LTV that most lenders offer is between 80 % -115 %. The loan amount sometimes exceeds the car value because the additional money is given to pay for other supplementary expenses of registration, insurance, accessories etc.
Age of vehicle
When it comes to loans for older cars, lenders have their own benchmarks. For few lenders no car more than 8 years can be financed. For few others 6- 7 years is also the limit. So before you buy a used car, make sure that it is not too old otherwise no one would be willing to finance you.
Term of loan
Now this is also at the discretion of the lenders and it is generally between 36-72 months. Now you should remember that several lenders fine you in case of a pre-payment. So you should be very clear of this clause in your agreement.
Miles on vehicle
How much the car has been driven before is also of essential consideration when it comes to assessing your interest rate. Lenders have a cap on how many miles the car should be driven. If the car is driven more than the pre-determined limit, then the lender won’t finance your loan. For few lenders the maximum is 60,000 miles while few also offer up to 90,000.
Down payment
When you buy a new car, its value is higher than a used one. So when it comes to making a down payment it becomes a bit difficult for students or anyone else. So if you buy a used car then making a substantial down payment would also be fairly easy. Read more… »