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Key Takeaways
- Chase, Capital One, and Bank of America are among the lenders who provide loans for certain older used cars.
- Most lenders restrict the types of used vehicles they will finance, based on mileage and vehicle age.
- Other factors lenders consider include the loan amount, the loan-to-value ratio, and the type of vehicle being financed.
- You can increase your chance of approval by raising your down payment, using a cosigner, and seeing if you prequalify.
Lenders may restrict financing certain types of used cars based on the vehicle’s age, mileage, vendor, and loan amount. That’s because they often struggle to determine the accurate value of used vehicles. In this article, discover the financing restrictions on used cars, your approval odds, and which lenders can help you get financing.
Lenders That Will Finance an Older Used Car
The criteria lenders use for financing used vehicles can vary. Lenders may have specific requirements, including limits on the car’s age and mileage, 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 model years |
| Bank of America | 125,000 miles | 10 calendar years |
| Capital One | 120,000 miles | 10 model years |
| Chase | 120,000 miles | 10 calendar years; 5 calendar years (Teslas) |
| First Tech FCU | 150,000 miles | 10 model years |
| PenFed | 125,000 miles | N/A; no older than five years and less than 60,000 miles for 84-month loan |
| PNC Bank | 100,000 miles | Nine years |
| Upstart | 140,000 miles | 13 years old |
| USAA | N/A | N/A |
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 Car Age
Older vehicles pose a higher risk and greater potential for loss, as the resale value of used cars typically decreases with 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 and resell the car to cover their losses. As a result, the older the car, the more challenging it is to get financing for it.
Maximum Mileage
Just like a vehicle’s age, mileage indicates wear and tear on a car. Higher mileage means that the vehicle is prone to depreciation and at risk of needing more repairs than one with fewer miles.
Amount to Finance
Although not always explicitly expressed, some lenders impose restrictions on how much they’ll loan you to buy a used car, as it’s often harder to assess their value. This limitation may also stem from mechanical issues and the overall risk 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 won’t be able to recoup the full balance of the loan after selling the car, especially when including repossession costs.
Vehicle Type
Certain lenders impose restrictions on financing specific types of vehicles, which may be due to reliability issues and/or depreciation concerns. For instance, Chase does not finance exotic vehicles, motorcycles, or recreational vehicles.
Insurance
Lenders generally require you to purchase full coverage auto insurance for the entire 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 compared to banks and dealerships, and may work with borrowers who have lower credit scores and those 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 keeping low balances. A higher credit score may get you better loan terms, such as a lower interest rate, saving you money.
- Increase your down payment: Putting more money down lowers your loan balance, the monthly payment, and the amount you’ll have to pay in interest. The lender may see 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 who has a high credit score, can help you secure great loan terms, such as a lower interest rate and a shorter loan term. Remember, you’ll have to keep up with your payment. If you don’t, your co-signer is legally responsible for the loan if you default.
- See if you prequalify: Prequalifying doesn’t affect your credit score, and can give you an idea of how much you can afford each month and the type of vehicle you can afford. Prequalifying also gives you leverage to negotiate with dealerships since you know your budget.
- Research multiple lenders before applying: Begin with your existing 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 the rates and terms to determine which one suits your needs, allowing you to make a well-informed decision.
The Bottom Line
Buying a used vehicle may seem like a wise choice for many reasons. The purchase price, insurance, and taxes are often more affordable compared to those of newer models. However, if you’re financing a used car, you may face certain restrictions, including the vehicle’s mileage and age. Do your research before shopping and applying for financing, especially if you have your heart set on a set of wheels that are a few years older.
