Financing a small used car loan is convenient for someone who doesn't want to finance a new vehicle price. However, most banks have minimal loan amounts required, for example, you may not take out a loan for only $2,000 --- the bank may require a $4,000 minimum. Check with your lender to make sure. If you have bad credit, taking out a large versus small loan, does not affect your chance of approval.
Small loans may have restrictions on the amount of loan years available for repayment. This has a lot to do with the vehicle you're buying, as well. If financing a small amount, you might not be able to go longer than a 60 month term. If financing an older vehicle, you may be required to take out a 36 month loan. Check with your lender to discuss pre-payment penalty fees, to ensure you are allowed to pay off your loan early. Lenders often do not extend an auto loan for fewer than a 36 month term.
Most financial institutions offer the same rate between a 36 and 60 month loan. The rate is based on your credit, and may slightly rise with the age and mileage of the car you are financing. Even if you are taking out a small loan, rates may sky rocket if you have a poor credit history. The amount of your loan does not make a difference in approval methods if you are a poor credit borrower.
A bank determines loan amounts based on equity. If you are trying to purchase a low-price, 10 year old vehicle with over 100,000 miles, you may not find an approval for a loan at all. Your lender may have requirements for vehicle lending terms. For example, you may find a pre-approval for an auto loan, but the stipulations require that the vehicle has to be fewer than 8 years old with no more than 100,000 miles.
If you are approved for a small loan on a used vehicle, you are required to have full-coverage insurance on your car, until the loan is paid in full. A full coverage insurance policy may prove expensive if you are purchasing a high-mileage, used car or one that is aged. Check with your insurance agent to discuss the price of a full-coverage policy, and determine if a traditional loan will work.
If you are unable to finance the banks minimum amount for your loan, or are buying an older vehicle with little value, consider a personal loan. A personal loan will not require you to maintain a collision policy or subject you to stipulations.
