Why don’t banks like giving loans for older cars?

Why don’t banks like giving loans for older cars?

Buying a vehicle represents a significant investment. Cars are notorious for losing value quickly. Because of this, many people are more inclined to purchase an older car over a new one. The logic in this is that an older car is already at its depreciated value. This means that an older car loses value slower than a new car. But many people trying this strategy may notice that it is difficult to find a loan to make the purchase. So why don’t banks like giving loans for older cars? There are a couple reasons.

Higher Risk Car Loans

Car loans are very different from home or business loans, and banks have to treat them differently. Car loans have smaller down payments and are usually on longer payment schedules. This means that car loans have smaller monthly payments spread out over a longer schedule. Because cars depreciate in value so quickly, this sometimes creates a situation where the bank is holding a loan with a negative equity. This means that the value of the loan is more than the value of the car.

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Conditions of Repossessed Cars

If someone cannot pay a car loan, the bank then repossess the vehicle. Even if the loan results in a default, the bank still has made an investment. In order to recover the money lost, the bank then has to try to sell the repossessed car. Many times vehicles that have been repossessed are not in great condition and reselling them can be difficult. Banks are businesses, and they need to act in their own interests.

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All of this leads banks to favor giving out loans for nicer, newer cars. These vehicles are easier to sell if repossessed and overall represent better investments, as far as the banks are concerned.

If you are looking to get a loan for an older car, many times smaller banks are more willing to consider other factors. Some agencies also specify in loans for collector cars. Asking for financing at a dealership is also never a bad idea. Many dealerships can help you drive home in a new car, regardless of your credit rating.

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