Used car loan value is the preferred amount of money that a bank, credit union or captive finance company would prefer to lend in a used vehicle finance transaction. The used car value is a book value that is set based on the age, mileage and equipment on the vehicle. Book value does not take individual condition of a single vehicle into account, but rather includes broader headings such as "clean loan" and "average loan." The following tips will help you understand loan value and how it may impact the terms of your used car loan.
- The loan value is a book value. It is set in stone based on current market conditions and the specifics of the vehicle you're financing.
- The loan value is the amount that a bank will lend on a particular used vehicle. If you finance the full loan value, your loan is considered a 100% financing loan. Lenders borrow both less than and more than the 100% amount, and you may find that borrowing less than the full used car loan value will result in a lower interest rate, and that borrowing more can result in a higher interest rate. This is very situational though, and it's up to an individual lender and their underwriting policies.
- Loan value varies based on option, mileage and color, among other things. Some banks use Kelley Blue Book to establish their loan values, others use BlackBook and some use NADA guides. The chosen valuation guide will ultimately impact the amount that can be financed.
- Depending on your personal credit history, a lender may cap the maximum amount that you can finance, either in relation to the used car loan value (say, for example, you're capped at 80% of loan value) or in relation to a payment the bank considers appropriate for your debt-to-income or payment-to-income ratio.
- Some dealerships will attempt to overbook a car by telling the lender that it has more options than it really does. This will force the lender to increase their loan amount and help you get a larger loan. However, overbooking a vehicle is unethical and it can cause problems between the dealership and the lender, and between you and the lender. While you will not likely know if this has happened to you, it is a common used car loan value trick used by dealerships.
- Used car loan value rarely goes up. Therefore, you are not likely to get a larger loan by waiting. In fact, used car loan value goes down just like how the trade-in or retail value of a vehicle drops.
- If you need to finance more than the loan value for a used car and you cannot secure financing, your best option is to put more money down. More money down would lower the loan-to-value ratio, which expresses as a percentage the amount you're looking to borrow versus the used car's loan value.
Used car loan value has a significant impact on the amount you can finance and the rate at which you can finance it. A finance manager at a dealership would be able to answer any specific questions you may have, as well as help you choose the lender that would work best for your situation.