Is it possible to buy the car of your dreams with someone else’s money? Many are finding that traditional car loans make it almost impossible to get enough credit to purchase a new or used car.
But, there are many people just like you that are using creative financing options like peer to peer lending to buy brand new cars with no money down. Could you use these same strategies to get a new car without ever opening your checkbook?
Anyone who has recently been shopping for a new or used car will understand how difficult it is to get an auto loan.
Today lenders have a long list of restrictions on car loans. Factors such as the age of the car, mileage, use and even brand can affect getting approved for financing. Consumers can be better prepared for any unexpected obstacles by reviewing common terms on car loans.
Our guide was designed to help borrowers understand their loan options when shopping for new or used cars. We uncover the types of restrictions that most banks place on auto loans and we identify an alternative financing option. Consumers have even used this information to negotiate better loan terms and even get approved for auto loans with bad credit. In addition, we provide resources on how to use a auto loan calculator to estimate you monthly payments and interest charges.
Factors to consider when shopping for car loans online:
- Purchase price
- Loan term
- Interest Rate
- Trade-in Value (if applicable)
- Monthly Payment
- Credit Score
- Tax, Title and Registration Fees
Auto Loan Requirements
Banks are extremely cautious when guaranteeing new and used car loans. They have placed a long list of restrictions on the type and age of vehicles that qualify for financing. The reason is to protect the bank in the event of default on the loan. While this is common practice for car loans it can make the shopping experience difficult for consumers with limited cash.
Often times consumers need to secure financing because they have limited cash available. To make matters worse, financing is usually only available for late model cars with low mileage that are being sold at a lender approved dealership. This can make finding a great deal on a quality used car almost impossible.
Borrowers are encouraged to review the basic loan terms that can be found with most car loans. While these requirements are common, they are not universal. Consumers will need to review the loan terms carefully as they may differ from the items listed below.
Basic requirements to qualify for traditional car loans include the following:
These loan requirements will vary from among lenders. Information to be used for illustration purposes only.
- Minimum loan amount is $7,500
- Vehicles must be less than 7 years old
- Must have fewer than 70,000 miles
- For Personal Use Only
Car loans can be used for these types of vehicles:
- New and Used Cars
- Light Trucks
The selection of cars available on the market has seen continuous growth due to Internet listings and online auctions. Consumers have found that some of the best prices are available from private sellers and small car dealers. Unfortunately, many lenders specify that car loans can only be used at franchised used car dealerships. Many lenders also have a list of preferred dealerships in their network that will accept their financing terms.
Car loans must be used to purchased from selected franchised dealers such as:
- Franchised used car dealerships like (i.e. CarMax)
- Preferred Dealerships specified by lender
- Manufacturer supported dealerships (i.e. Ford, Chevrolet, Toyota, etc.)
When a consumer is ready to apply for an auto loan they must have their personal information ready. Lenders will require that borrowers provide a copy of a valid state-issued form of identification such as a drivers license. In addition, borrowers will need to provide proof of income, residence and possibly personal references.
These are common requirements for the majority of financing options for car loans. Borrowers that take the time to organize their information before applying for car loans will find that the application process is much easier.
Required documents needed after getting approved for a car loan:
- Copy of valid state-issued identification
- Proof of income
- Proof of residence
- Personal references
So far we have covered the basic requirements to get approved for car loans. These included the type, age and use of the vehicle. Many lenders also have requirements on approved dealerships that borrowers will need to keep in mind. And finally, we covered the basic documents that borrowers will need to have ready when applying for car loans.
Now that borrowers have a basic idea of what lenders are looking when applying for car loans we will begin to cover some additional restrictions that many consumers face.
Restrictions on Standard Car Loans
Traditional financing for autos have many restrictions on how the money can be used. For instance, many banks will not guarantee loans to borrowers that will be purchasing from independent used car dealers or private party sellers. These include online car auctions and classified listings from individual sellers. Auto brokers and government auctions are also excluded.
Standard car loans cannot be used to purchase vehicles from:
- Independent Used Car Dealers
- Private Party Sellers
- Auto Brokers
Consumers that are applying for car loans will need to be honest about their purchasing intention. Financing is typically not available for vehicles that will be used for commercial or business use. There are special loans to cover these types of vehicle purchases. In addition, car loans cannot be used to purchase lemon vehicles or in place of motorcycle loans and RV loans.
Financing is normally not available for:
- Commercial Vehicle Loans
- Motorcycles Loans
- Recreational Vehicle Loans
- Lemon Vehicle Loans
Auto Loan & Financing Alternatives
At this point borrowers that do not meet the above criteria will be needing an alternative to traditional car loans. Today one of the most popular options for car financing is peer to peer lending. These new online lenders connect individual investors to borrowers looking for unsecured personal loans to finance a car purchase.
One of the primary benefits is that there are no restrictions on the type or use of the vehicle. This will open a new set of opportunities to borrowers looking for a good deal on a used vehicle. Unsecured loans are available up to $25,000 and have low interest rates starting around 6 percent. Peer to peer lending sites require no down payment or collateral to secure the loan making it easy for borrowers to get approved with limited cash.
For consumers that are interested in using an alternative to auto loans they may want to review our guide on peer to peer lending. We have also put together additional resources on the two largest peer to peer lending sites: Prosper and Lending Club.
Borrowers should not get discouraged after reading the long list of restrictions that come with standard car loans. Today there are many alternative financing options available for borrowers at low interest rates. Now is the time to take advantage of attractive loan terms and creative financing options while rates are low.