Why is getting a bank loan for an older car difficult?
Many car shoppers looking to purchase a vehicle can be discouraged by how quickly their new investment loses value once it is driven off of the lot. In order to avoid this, some car shoppers may instead choose to purchase an older car. An older, used car is already at its depreciated value. Thus, the investment does not lose value as quickly. However, car shoppers attempting to do this may find it difficult to find a bank willing to offer a loan. So why is getting a bank loan for an older car difficult?
Higher Risk Loans for Older Cars
It’s all about risk. While buying an older car may seem like a better investment for some vehicle shoppers, these loans are higher risk for banks. If a loan cannot be paid, the bank repossess the vehicle. But things do not end there. The bank must then turn around and sell the repossessed vehicle. Many times vehicles that have been repossessed are not in the best condition, and this can make reselling them difficult, especially if the car was older to begin with. Newer cars are easier to resell, and thus are considered better investments.
Car loans are not an ideal investment for some banks to begin with, when compared to home of business loans. Automotive loans almost always have smaller down payments and smaller monthly payments and are spread out over a longer period of time. The fact that cars depreciate in value so quickly means that it is likely that at some point an auto loan can hold a negative equity, where the value of the loan is greater than the value of the car.
If you would like to obtain a loan for an older car, many institutions exist that will help you obtain financing. One of the best things to do is ask for financing options at the dealership. Car & Credit LLC offers an extensive selection of great cars and the financing options to make sure you can get on the road as soon as possible. Stop by for a test drive to learn more.