When taking out a loan on a vehicle or real estate, the lender will determine your loan to value ratio, defined as the amount of the loan compared with the worth of the property. Value includes the vehicles fair market value minus the equity you have in it. You can finance your vehicle for more than you paid for it under limited circumstances through institutional lenders, but most dealers are reticent to offer such deals.
New Vehicles
Some car dealers will roll over fees onto the amount of a vehicle loan, which can leave you with a note worth more than the purchase price of your vehicle. These rolled over charges can include transfer and trade-in taxes and title, registration, documentation and advertising fees. Dealers typically only offer these loans to the most creditworthy borrowers. They mitigate their risk of issuing a loan greater than the value of the vehicle by offering you a higher interest rate or fewer discounts.
Refinancing
If you have trouble making monthly payments to a dealer, you may use a lender to refinance your vehicle loan. Refinancing will replace your existing loan terms with a different interest rate and monthly payment. You will usually finance your vehicle for the remaining value of your vehicle loan. Because most vehicles depreciate 10 percent to 20 percent in the first year of ownership due to obsolescence and use, the fair market value of your vehicle is typically higher than the existing balance of your loan.
Considerations
If you purchase a vehicle with a high resale value and have excellent credit, a select few lenders may offer you a loan in excess of the vehicles fair market value. For example, Wells Fargo allows customers to take out a loan on the value of their vehicle up to a 160 percent LTV ratio. This means that a vehicle worth $10,000 can be financed for $16,000. These loans carry a high risk of default, and banks have a lower risk of recovering their loan due to depreciation and wear. You will have to shop around, because most lenders will only allow up to a 80 percent LTV ratio.
Kickbacks
When you purchase a car from dealers, they usually offer promotional offers that can include cash back at signing. For example, a dealer may offer 0 percent financing or 4 percent financing with a few thousand dollars cash back. If you choose the latter option, you are essentially financing the vehicle for more than its value, because you will receive cash upfront but pay more in interest over the life of the loan.
0 comments:
Post a Comment