If you are considering buying a new Luxury car, you may be wondering if the car loan process is different. This is a good question because a loan greatly increases the final cost of any car purchase.
New Luxury Car
The Loan Process for a Non-luxury New Car
To qualify for a new car loan, you must have a good credit score. You’ll need a sizable down payment in the range of $1,000 to $4,000, depending on the cost of the vehicle you are buying.
If your credit history isn’t good, but you qualify for the loan, this will mean a higher interest rate. It’s one of the unfortunate parts of the system that those with poorer credit scores end up paying more for a vehicle loan.
Of course, you also have to demonstrate that you have the income to make the payments on the car you want. Once the lender is satisfied by those two criteria, you learn the maximum amount you can borrow.
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The Loan Process for Those with No Credit, Poor Credit, or Bad Credit
For those with no credit, it may be possible to get a new car loan, but this is usually reserved for individuals who have just graduated and gotten a firm job offer. Most people with no credit or poor credit will get a used car loan rather than a new car loan. Interest rates are higher for a used car due to the fact that a used car doesn’t represent the same collateral that a new car represents.
In addition, bad credit car loans are available to people who have low credit scores. These are often available to people who have been through bankruptcy. However, these are usually for used cars. Furthermore, the interest rates are higher to take into account the lender’s concerns about repayment of the loan.
As with a regular car loan, the lender will determine how much can be borrowed. At that point, the buyer will have to find a car that can be purchased for that amount.
You could say that it is easier to get a loan for a luxury car if you are buying used. And that’s what many people will do to get the Expensive Cars, brands, or models they want.
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The Loan Process for a New Luxury Car
Back to new cars, the term Luxury Car is a bit general. So, let’s talk about “affordable luxury cars”, those that overlap with conventional cars but go a bit higher. These include vehicles with entry-level models in the range of $40,000 to $75,000. If you’ve been shopping for affordable cars lately, you’ll notice that these entry-level costs are similar to higher trim levels of non-luxury cars.
Once again, the lender will look at credit scores and income to determine if a person is eligible for the loan amount. At this level, luxury car loans are really not that different.
However, the interest rate may be higher simply because the luxury car is expensive. This may make a difference in the overall affordability of the vehicle, even if a person appears to have the income to handle the payments.
A good down payment can help you get a luxury new car loan in Phoenix for a better interest rate, even if you don’t have a perfect credit score. You can negotiate a lower interest rate in return for paying more of the initial costs of the vehicle. That helps you in the long run by lowering the amount of the loan and reducing how much you’ll pay in interest beyond the original asking price over time.
Ownership costs for luxury cars tend to be steeper. Insurance rates and maintenance costs are higher. Often fuel economy isn’t as good as a comparable non-luxury car, and premium fuel may be required. When figuring out if you can afford a luxury car loan, you should take all of this into account.
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The Loan Process for Supercars and Exotic Models
Moving up the ladder, there are models with asking prices of $100,000 or more. Often the person who can afford such supercars or exotic cars is able to buy them outright. Then there’s the rest of us!
Getting a loan for one of these supercars is out of reach for most people. A person would need to have plenty of collateral to back up such a loan, and they would need to show a very high income.
There are some loan companies that are offering “exotic” car loans. These loans suggest that certain cars will gain in value. These are investments that can be sold at a profit, unlike normal vehicles that depreciate greatly. Unfortunately, these loans typically have 12-year-terms and high-interest rates.
Making the Right Call
If you are debating whether a luxury car loan is right for you, you are thinking smart. Here are the dealbreakers.
- If offered a small down payment, you are being enticed to take a loan that will be much more expensive for you in the long run.
- If the loan term is longer than five years, then the car is beyond your means. A long loan term means that the monthly payments are artificially low to get you to agree to the sale.
- You shouldn’t have a high debt-to-income ratio. If your DTI is over 40 percent, you shouldn’t even consider the loan.
- If making the payments will leave you little wiggle room in your budget, you don’t have enough income for the loan.
- A lender (or seller) insists that a supercar or exotic car is an incredible investment. In rare cases, this is true. In most cases, even the nicest luxury cars depreciate greatly in value.
Now that you know more, do you want to buy a luxury car? There are some affordable ones on the market. You just have to be careful not to get stuck with a loan that is too expensive for your lifestyle.