Loan To Value Ratio
Most people wait to have the available cash before purchasing a used car so they don't have to deal with payments. Yet you can purchase financing through your car dealer or bank if you don't have the cash to pay the full amount. The dealer or bank will determine the loan amount based on the current value of the car, referred to as the loan to value (LTV) ratio. When determining the value of a used car, the wholesale value trade is generally used to figure out the loan amount.
Lenders generally want as low of a LTV as you can get for the vehicle, since this means that the car is worth more than the amount you want to finance. Some lenders will even have limits to their LTV ratio which can affect whether you will qualify for a loan for the used car.
Used Car Loan Rates
Figuring out a car loan that works for you will also be based on other factors: the vehicle's price, the amount of your down payment, the trade value, the term length, sales tax, and the interest rate. These factors will allow you to figure out how much you will have to pay in monthly installments. Used car loan rates can fluctuate depending on the current interest rate. By understanding the interest rate, you can get the best loan at the most affordable price.
For the past three months, used car interest rates have remained relatively steady. For a 36 month used car loan, rates have been about 4.69% for the beginning of May 2013. This rate has increased to as high as 4.71% in February and as low as 4.68% in March of 2013.
Used car loan rates are on average higher than new car interest rates for a 48-month and 60-month loan term, as new car rates average around 4% to 4.12%. So always keep in mind what the current used car loan rates are when you purchase a vehicle. You not only want to make the most affordable purchase for your budget, but also have a reliable vehicle that will get you to work and run errands. Include the vehicle purchase amount, loan amount and interest rates in your budget planning so you are getting the best deal for your money.