Can You Get Financing for Older Cars?
Here's how to get financing or find alternatives to traditional car loans.
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During the COVID-19 pandemic, global supply chain issues and production shutdowns for manufacturers of automotive parts and semiconductor chips contributed to skyrocketing prices in the auto industry as new-car stock dwindled.
In the time since, lightly used cars, once a more attainable go-to for financially minded buyers, have become out of reach for some, leaving only older or higher-mileage cars as potentially affordable options.
Financing an older car can be a viable alternative for some car shoppers, although it might not be as simple as financing a new one. Getting a loan can be harder, interest rates could be higher, and operating costs have the potential to offset any initial savings. If you're in the market to finance a vehicle with some extra years on it, there are a few things to keep in mind.
Financing for Older Cars Can Be Harder to Get
Older vehicles can be tougher to finance for multiple reasons, including an older car's higher likelihood of mechanical errors and a more difficult-to-determine value. An older car might also require more maintenance to keep it running smoothly, which could in turn lead to more repair costs. If you are unable to pay your monthly loan payment due to these expenses, this could lead to repossession and a negative impact on your credit.
If your car is repossessed and no longer functions or holds its predicted value, your lender may end up with a loss on your loan. To help offset these factors, used cars can have higher interest rates, according to data and analytics company Equifax.
The perceived lifespan of your car can also determine the length of your loan, which could affect your monthly payment. That said, vehicle life may be getting longer, according to automotive analysis firm S&P Global Mobility, which said a record-setting 12.5 years is the average age in 2023 for cars and trucks in the U.S.
How Auto Loans Are Shifting Post Pandemic
Given these longer vehicle lifespans, Kelley Blue Book, an automotive valuation and research company, claims some lenders might be more open to offering financing for older cars. The pandemic also appears to have put depreciation on a brief hold for used cars, as reported by auto-focused inventory and information site Edmunds, meaning lenders might be more likely to get their money back before a car depreciates.
Keep in mind that despite these market changes, older cars may continue to be perceived as a greater financial risk by lenders, so higher interest rates could still be unavoidable. Your chances of loan approval will also depend on the age and mileage of the car.
Older Car Financing Alternatives
What if your auto-financing application is rejected? Although not as straightforward as a traditional auto loan, there are other options to finance your older car.
One possibility is to examine your savings options for building up cash. Consider opening a high-yield savings account to increase your capital and save up to afford an older car without taking out a loan.
Personal loans also offer borrowers the money they need to make larger purchases when they're short on cash. If you have good credit you might be able to get an unsecured loan. If your credit is lower, you might be able to offer collateral or have a cosigner help secure your loan. While personal loans can be helpful, however, keep in mind that they typically have higher interest rates than auto loans, with current (as of July 2023) two-year personal loans at an average of 11.48%, compared with 7.48% for 60-month new-car loans.
