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Can You Finance a Car You Already Own?

Yes, in many instances you can finance a car that you already own. You will only be able to have one lien on the vehicle at a time, though.

Things To Keep In Mind

There are a few things that you should keep in mind before you choose to finance a car that you already own. These include: your credit score, the value of the vehicle, and a post-loan plan.

Your credit score prior to the loan can determine whether a lender is willing to risk the loan and what percentage of the vehicle’s value they are willing to offer to you. A person with a good or excellent credit score will be able to get a loan for close to 100 percent of the vehicle’s value. On the other hand, if your credit score is less than 700, you may only be offered 50 percent of its value. This is known as the loan to value ratio, or LTV.

While determining your loan eligibility, a lender is going to look at your debt-to-income ratio, or DTI. The lender is going to want to see that your DTI is under 36 percent of your gross monthly income, including the payment on the new loan. If it is not, you are going to have to show that you are intending to pay off other debts with the money or the loan will be denied.

We have already addressed the value of your car as it pertains to how much you may be able to borrow, but it also affects whether you get a loan at all. Many large nationwide lenders do not make loans against vehicles worth less than $3,000. They are looking at the overall profitability of the loans and there just isn’t much money to be made on small loans. Credit unions and specialty lenders are going to be your only options if your vehicle is worth less than $3,000.

The last item to keep in mind is your post-loan plan. There has to be a reason that you need the money. If it because you are struggling to make ends meet, you should consider paying off other debt with the proceeds from the loan in order to lower your monthly obligations. The first step to paying debt down is a workable budget. With a budget in hand you can make the loan work for you. Without one, you will be working to for the loan.

So, yes, you can finance a car you already own, but you should consider the things mentioned above before you apply for the loan.