Financing an older used car

The rule that catches most people

Lenders assess the security they are lending against, and a vehicle's value falls as it ages. To protect themselves, most set a maximum age for the vehicle at the end of the term — commonly somewhere between twelve and fifteen years, though it varies.

The consequence is not obvious until you run the numbers. A ten-year-old car on a lender with a fifteen-year cap gives you a maximum five-year term. An eight-year-old car on the same rule allows seven years. And a fourteen-year-old car may not be financeable at all with that lender, regardless of how sound it is.

Shorter terms mean higher repayments for the same amount borrowed. This is the single biggest reason people in Tasmania find that a cheaper car does not produce the cheaper repayment they expected.

Why a cheaper car can cost more per month

Consider two vehicles. A $15,000 car that is four years old might be financeable over seven years. A $10,000 car that is eleven years old might only stretch to four.

The larger loan over the longer term can produce the lower monthly repayment, even though you are borrowing more. Which is genuinely better depends on your circumstances — the longer term means more interest overall, and you should not borrow more than you need — but the assumption that a cheaper car always means a cheaper repayment is wrong, and it is worth checking before you commit.

Condition, and what Tasmania does to cars

Age is not the only issue. Tasmania's climate and roads leave their mark, and there are specific things worth checking on any older vehicle here:

• Rust, particularly on vehicles from coastal areas or anything that has spent winters on salted or gritted roads
• Whether the car has been driven regularly or sat for long periods — infrequent use causes its own problems
• Service history, which matters more the older the vehicle gets
• Whether major wear items are due, since a timing belt or clutch on an older car can cost a meaningful fraction of the purchase price

When financing an older car does not stack up

There is a point at which the honest answer is not to borrow. If the vehicle is old enough that the term must be short, the rate reflects the age, and the car will need significant work within that term, you can end up making repayments on something that is no longer roadworthy.

The better move is often to borrow slightly more for a newer vehicle with a longer available term and lower running costs. Not always — but it is worth modelling both before you decide, rather than defaulting to the lowest purchase price.

Common questions

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