It is possible to finance a high-mileage car, but you may need to seek a non-traditional source of financing.
Lending Restrictions on Higher-Mileage Vehicles
Traditional lenders use a set group of criteria when considering a loan. One of those criteria is that the vehicle must have less than 75,000-100,000 miles, depending on the lender. Vehicles with miles in excess of 100,000 are seen as a risk for costly repairs. When the cost of repairs becomes burdensome, borrowers have proven that they are willing to default on a loan. Banks are typically the strictest lenders when it comes to used vehicle guidelines, as they have the lowest risk tolerance of all types of auto lenders. On the other hand, finance companies are much more receptive to these vehicles, and some will finance nearly any car as long as you have a down payment. These are the types of companies we can put you in touch with, either directly or through a local finance specialist.
Alternative Means of Financing
Some credit unions and finance companies may approve a loan for a vehicle with higher miles if you meet other criteria. The criteria affecting such a loan include:
- Loan to value ratio (LTV).
- Length of loan.
- Down payment offered.
- Gross income (before taxes) per month.
- Total debt to income (DTI) ratio.
Since a high mileage vehicle presents a higher risk of default, you will find the terms offered a bit more constricting. The LTV will have to be less than 100 percent or you will be required to pay for gap insurance.
The length of the loan offered will be short. You may have to repay in as little as 24 months, meaning higher monthly payments. Many lenders will require a down payment equal to twenty percent of the total purchase price if the odometer tops 100K. Your gross income will have to exceed $1,450 per month and you will have to owe less than 35 percent of that income toward debt repayment (DTI). Your credit score comes into play with all loans, but it may have to be higher in order to be approved for a high mileage vehicle loan.
Where and Which Vehicle to Purchase
Typically, you will be required to purchase the vehicle from an approved used vehicle dealership, as opposed to purchasing the car through a private seller through the local classifieds, Craigslist, etc. It would behoove you to do some intensive research on the longest-lasting cars on the market. Some vehicles hold up much better with 100,000-plus miles than others. This information is readily available online from trusted sources such as Consumer Reports, Forbes, and more. It may also be smart to have a third-party inspection performed by a skilled mechanic in order to determine if your vehicle is going to need any unexpected maintenance in the near future.