You can take out an automobile loan to buy a new car or to refinance a car that you already own. Typically, though, you can only have one lien on a car, so if you already have an existing loan you must pay that loan off with proceeds from your new loan.
Loan to Value
Your loan amount cannot exceed the value of your car and lender's determined value by looking in the Kelley Blue Book. The number of miles the car has been driven and its overall state have an impact on its value as the Blue Book prices cars based on both of these factors. Where you live also has an impact on the value of your car since automobile prices vary in different parts of the nation and Kelley Blue Book values reflect these regional price fluctuations. You can normally borrow up to 100 percent of the current value of your car although some lenders may limit your loan to 80 percent of the value.
Cars do not last forever and most lenders limit car loans to six years because after that point most car warranties end and cars begin to lose value very quickly. Lenders typically do not write loans on cars that are older than seven years, and you can usually only take out a two-year loan on a car that is more than four years old. Lenders only like to have liens on cars while those cars actually have some value.
Car loans are usually fixed-rate loans. People with credit scores in excess of 740 get the lowest rates on car loans, but you can normally qualify for a loan as long as you have a credit score of 640 or better. Rates for loans on new cars are lower than rates on older cars because older cars are more likely to have mechanical problems and lose value more quickly than new vehicles.
You can refinance an existing car loan with a new low rate loan, but before you do so you should check how your current lender applies interest to your loan. On some loans your principal accrues interest over the course of the loan in which case you can benefit from refinancing into a low rate loan. However, other lenders add the total cost of your interest into your loan amount from the outset, which means that to payoff your loan you must payoff the principal and total interest due over the course of the loan. If you refinance such a loan you could end up losing money because you pay all of the interest due on the original loan and then start paying interest to another lender on the new loan.
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