Auto lending terms have been getting longer in recent years. Today, the average new car is financed for 64 months. But what about pre-owned vehicles?
Can you get a 60 or 72 month auto loan for a used car?
Firstly, yes: it is possible. But whether you will be able to do so depends on three primary factors:
- Vehicle Age: it’s used, but how old and what mileage?
- Your Credit: do you have sufficiently-good credit for a long-term loan?
- Your Lender: many banks have strict restrictions on used vehicle financing.
In the old days, there used to be a rule of thumb when it came to financing older cars: vehicle age + loan term = 10 years or less. So, in order to get a 60 month (5-year) loan, you would need to finance a vehicle that’s five years old or newer. This is still a useful guideline for what’s possible, but it is not by any means set-in-stone.
If you are interested in this form of financing, we suggest that you apply online through us. At MyCarLender.com, we have relationships with lenders all across the nation: banks, credit unions, auto finance companies, and dealerships. By utilizing our system, you can avoid the hassles of looking up the used car criteria for each and every lender. You can apply once, and we’ll find you the loan you need!
Bank Financing: Additional Restrictions
However, many banks place these or similar restriction on used car loans:
- Vehicle must be no older than 7 or 9 years.
- Vehicle must have less than 70,000 or 100,000 miles.
- Loan Amount must be at least $7,500.
That said, it is difficult to generalize, because each bank and lender has their own approval criteria and restrictions on used vehicles. It is certainly not impossible to finance an older car for 60 or even 72 months. But that brings up another question: should you?
60-Month Used Car Loan: Good Idea?
The reason that many lenders are hesitant to fund loans for used vehicles with long repayment terms is simple: they are concerned about the mechanical soundness of the vehicle down the road. As an example, a 7-year old car financed for 60 months will be 12 years old by the time it’s paid off. By then, it could have serious mechanical issues or even be kaput! This will make the borrower more likely to default. This increases lending risk, thereby impacting interest rates and approval decisions.
If you do decide to go with a 60 or 72 month term, it’s best if…
- The make/model you’re buying has a reputation for long-term, high-mileage reliability.
- You are handy enough to work on your car, or you know someone who is (spouse, relative, friend, etc).
It’s crucial to get maintenance done at a discounted rate, or the rising repair costs associated with an aging vehicle could begin to eat into your monthly allotted car payment. Obviously, this could lead to all sorts of problems.
Higher Payments vs Negative Equity
There is a reason that 48 months in the traditional used car financing term: it’s short! You will have the vehicle paid off before it’s too old to cause you as many problems, and you also minimize the amount of time that you’re underwater or upside down on the loan. Negative equity is always a risk when financing a car. Used vehicles are somewhat less susceptible than new ones, but they still lose a good bit of value each year: often 10-15%. A shorter term loan will make your monthly payments higher. However, you will pay less interest in the end, and you will spend less time worrying about negative equity in the vehicle.
Specialty Lending for Older/Classic Cars
There are a number of specialty lenders that finance used cars for 60, 72, 84, 96, 108, and even 120 months. However, that’s because the vehicles being financed are typically collectors’ cars. That means they are much more likely to appreciate in value, rather than depreciate. If a vehicle doesn’t lose its value, then long-term loans are not nearly as problematic; after all, the asset could always be sold and the principal paid off without a “deficiency balance.” However, this is a specialized form of lending that we do not deal in directly. Typically the lender will need to have the vehicle in question appraised before they can agree to any terms or conditions.