Shopping for a new or used car is exciting. The options! The possibilities! Completing the finance process, though, can be nerve-wracking. I spent years as a licensed used car salesperson here in the Midwest. While some folks feel comfortable near-blindly landing a big car payment compared to their income and other fixed expenses, an informed vehicle shopper is a smarter one. It helps to know some general auto finance concepts. Let’s start with the lowest car loan you can possibly get.
Now, we’re talking lowest car loan amount, not the lowest monthly car payment. A super low car payment could indicate you’ve chosen an inexpensive vehicle with a longer loan term – say several years. You’d also need an excellent credit score and a low debt-to-income ratio. Folks wanting the lowest car loan balance, though, might actually end up with a higher monthly payment in order to quickly resolve the debt and own the vehicle free and clear of long-term interest.
Auto financing is heavily dependent on your individual financial picture. As such, there isn’t a set-in-stone industry minimum for loan amounts, rates, credit score, and term length. However, typically, each financier has its own set of minimums determined by both internal and external parameters (like the Fed). Generally speaking, car loans must be at least a few thousand dollars…think $5,000, with some exceptions here and there.
Additionally, lienholders can set standards for the vehicles they’ll finance. These usually include limits for age, mileage, and title status. Lienholders look to enter into agreements touting the lowest risk possible. Vehicles in poor condition will be more difficult to finance.
Most lienholders will also set different minimum standards for various types of loans. For instance, they set specific parameters for new car loans, used vehicle loans, and refinancing.
As such, the lowest car loan you can possibly get depends on your credit score, debt-to-income ratio, the car you’re looking to buy, your downpayment, and current minimum APRs.
For example, one bank might set its minimum used car loan standards at $5,000 with a 7.24% annual percentage rate (APR) for 12 months. The bank might also require a minimum credit score of, say, 575. Perhaps for vehicle standards, the same bank will only finance used cars 10 years or younger, with under 100,000 miles, and only clean titles (no rebuilt salvage status, for example).
Say we went ahead with a $5,000 used car. For the purpose of this article, I found a 2008 Honda Civic LX listed on TrueCar for $4,995. Let’s say we have $500 cash for the down payment. The vehicle is older than 10 years, but we have excellent credit in this play. So, the bank agrees to finance us. The terms are the same as above. According to Calculator.net, the monthly payment is estimated at around $454 for 12 months. After that, you’d own the car without a lien.
Now, in 2024, most used 10-year-old cars with max 100K miles list between $10K and $20K.
To help understand your own car loan candidacy, I’d suggest doing the following before entering into a loan agreement:
- Know your credit score and debt-to-income ratio. If your report contains large blemishes, see if you can address them before getting a car loan.
- Determine your maximum downpayment ability. The amount should not leave you unable to comfortably pay your main fixed expenses or without an emergency fund. This is especially true for as-is used car purchases.
- Research the best cars for your actual needs and financial health.
- Shop around for rates and loan terms. Use a loan payment calculator to help determine the best terms for your specific situation.
Having financial literacy around car loans, including the lowest car loan you can get, helps protect you and your loved ones from disadvantageous or even predatory lending.
