If you are shopping for a new or late model used vehicle, chances are good you will need auto financing. Many of us do not have the large sum of money it would cost to pay cash for a vehicle, hence the need for financing. Financing for an auto can be obtained through banks or other financial institution in the business of loaning money.

You can finance most any vehicle you are likely to buy. Lenders do however tend to draw the line at older vehicles. This is because the majority of the auto loans made are secured loans, meaning the vehicle being purchased is being used as collateral for the loan. The lender will lend you the money to purchase the vehicle knowing if you default on a payment, they will at least have the vehicle to resell in order to recoup some of their money. Lenders do not like having to take the vehicle back because they are not automobile salesmen, but they will if they are not getting their money from the purchaser.

If you have pristine credit, there is always the possibility of purchasing a vehicle with a signature loan. A signature loan is an unsecured loan. No collateral is being put up to secure the loan. The lender is banking on the fact that you have always made your payments on time and have paid off several notes whether it was to them or a competitor. These loans usually carry a slightly higher interest rate, but you are allowed to use the money for any type of car you wish to buy. Because lenders have an aversion to loaning money for the purchase of an older vehicle, such as a classic vehicle in need of improvements, you will need a signature loan to purchase this type of vehicle. Lenders will not take collateral for a loan, unless the collateral is worth at least as much as the loan. If you run into a seller of a used vehicle who is asking for more than the vehicle is worth, the lender will only loan you the amount of the vehicles worth. You will have to make up the difference in cash.

When it comes to down payments on the vehicle you wish to purchase, a lender will usually require a percentage of the selling price as down payment. This not only makes the loan amount smaller, but also lenders know as well if not better than anyone else how much the vehicle you purchase depreciates once it has been driven off the lot. The vehicle is worth more sitting on the showroom floor than it is once it has been purchased. Again if you have pristine credit many lenders will not require you to have a down payment because they are vying for your business.

If you have bad credit or no credit, take heart chance are good you can still get a loan to purchase a vehicle. You will be required to pay a higher interest rate and you will also be required to have a large down payment. The lenders don't want to loan you any more than they have to. They feel they are taking a chance on you anyway, so you have to do your part in making them feel like you are a good risk.