Often while purchasing a new car, obtaining an auto loan that is equal to the value of your car can be tricky. The whole point of applying for a loan is to ease the financial burden in acquiring your new car. Therefore, it is best when the maximum amount of your cost is covered through the loan. Therefore, any auto loan with an impressive loan-to-value percentage is sought after.
So, what is loan-to-value percentage and how does it work?
Technically, a loan-to-value percentage is the amount of the loan financed, relative to the value of the car. It is usually calculated by dividing the loan amount by the current value of the vehicle.
Under an ideal scenario, the loan-to-value percentage is below 100%. However, on a situational basis, lenders can extend loans up to 150% of the value of the car. For instance, assume you want to buy a car worth $50,000 and the loan-to-value percentage on the auto loan is 120%. It indicates that you still have $10,000 to spend on other expenses while you can easily cover the cost of your new car.
A lower loan-to-value percentage means a lower risk for the lender. However, there are a few ways to obtain a loan-to-value percentage which is higher than the value of the car you want to purchase.
What should you keep in mind to obtain a Higher Loan-To-Value Percentage?
· A Clean Credit History
A squeaky clean credit history is by far the most essential factor in not only getting an auto loan, but also getting higher loan-to-value percentage. Without a good credit history, accessing an auto loan can be difficult and it might cost you a tad bit more. Therefore, it is imperative to maintain a good credit record as it is exceedingly important in acquiring a higher loan-to-value percentage.
· Type of Car
Whether you are buying a new car or a used car, your repayment options and loan-to-value percentage can greatly vary. Surely, buying a new car has its own set of benefits as you are backed by a warranty for a few years. Additionally, the loan-to-value percentage on used cars may not be absolute as against new cars. Therefore, an auto loan for a newer car can cover your loan completely and in some cases even extend it to an amount more than the cost of the car that you want to purchase.
· Steady Income
The primary criterion for qualifying for an auto loan includes a steady income. For any lender, a steady income stands as proof that you are capable of repaying the loan amount in the given time period. Usually, lenders ask for payment stubs or bank statements to validate your income. With a steady income of the past few years, obtaining a higher loan-to-value percentage is possible.
Taking the above points into consideration, you get a clearer picture on how a loan-to-value percentage on an auto loan works and the factors you should consider so that you can bargain for a higher amount on your auto loan. Always carry out an extensive research and read the loan agreement meticulously before you decide on choosing an auto loan.