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How do I find out the loan values on used cars?

Some car buyers will save up their pennies and pay cash for their next car purchase. Most, however, will finance their car. Obtaining a car loan requires you to apply for a loan through a car financier. This can be done through a dealership you are working with, or you can apply for a car loan directly by contacting the financiers on your own. When you are buying a used car, there are many cost factors to consider.

For example, you may be entering your ZIP code into a car insurance rate comparison site to research insurance costs for a specific vehicle. You may also be wondering how affordable financing on a certain car may be. The loan value on a car is a key component of how much financing is available to you. So how do you find out the loan value on a used car?

What the Loan Value Is

The loan value essentially is the value a car financier places on the car. When buying a used car, the loan value typically is the Manufacturer’s Suggested Retail Price, otherwise known as the MSRP. When buying a used car, however, other factors come into play in determining the value, including the age of the vehicle, its mileage and more. A lender will then apply a certain LTV ratio, or loan-to-value ratio, to the value to determine the loan amount that may be offered. The down payment a lender will require on a vehicle equates to the sales price minus the lender’s loan amount. So a higher loan value equates to a lower required down payment.

How a Used Car Loan Value is Calculated

The loan value of a used car is calculated through analysis of several different components, and these components include:

• The Kelley Blue Book or NADA valuation for a trade-in price
• The original MSRP of the vehicle less a certain rate of depreciation for each year the vehicle has been in service

Typically, the original MSRP less an annual rate of depreciation will be applied for newer vehicles that are only a year or two older. Other factors, however, such as a vehicle’s mileage and number of owners may affect the valuation.

Calculating Your Loan Amount

The valuation of a used car is not difficult to determine, as a car buyer can easily visit the Kelley Blue Book or NADA websites to research the value. However, it can be more difficult to determine what loan amount you can qualify for. This is because most lenders will not lend up to 100 percent of the loan value. When buying a new car, many car lenders will lend over 100 percent of the loan value. This is designed to help those car owners who are upside down in their current car or who have no down payment funds to afford a new car.

A new car price includes sales price, taxes and other fees. With a used car, however, a lender may only offer 80 or 90 percent of the loan value as the loan amount. The loan-to-value will vary from lender to lender. This is complicated by the fact that some lenders may place a different car value on the vehicle as well. So it is possible to apply for a car loan with three different lenders and be approved for three different loan amounts.

Calculating Your Down Payment

Once you have determined the loan amount you may be approved for, you can then more easily determine the down payment required. Keep in mind that the down payment is the difference between the sales price and the loan amount. However, you may wish to negotiate a lower sales price based on the loan amount you were approved for. There are different strategies available for negotiating a sales price, including:

• Having a mechanic review the vehicle and using an itemized list of needed work on the car to negotiate a reduction in price
• Using the lender’s car value as a negotiation tool
• Using the NADA or Kelley Blue Book valuation for negotiation purposes

The more significantly you can lower your sales price, the less money you will have to pay out of pocket to purchase the vehicle.

Other Costs to Consider

Before you finalize your offer, keep in mind that there may be other costs associated with purchasing and owning your vehicle that you have not considered. For example:

• The vehicle registration transfer fees required in many states
• The required sales tax on your purchase
• The cost of car insurance insurance, which you may shop around for and compare quotes on before you finalize your purchase

Buying a used car rather than dealing with the pressure of a dealership’s salesperson may seem like a faster and more simpler way to buy a vehicle. In many cases, it can result in the buyer purchasing a high quality car at an affordable price. However, finding financing and determining the loan amount you may qualify for with a used car purchase can be complicated. While you are getting prequalified for financing, take time to compare car insurance rate quotes as well. You can enter your ZIP code into a rate comparison website to shop for auto insurance rates as an effort to keep the cost of ownership low.