Since luxury vehicles usually depreciate much faster, loan structures are generally much different from those when buying a normal passenger vehicle. But are luxury cars more expensive to finance? Let’s find out.
Are Luxury Cars More Expensive To Finance
Regardless of whether or not a person is a car enthusiast, chances are he has at least thought about owning a luxury vehicle. Thanks to financing, that dream is made much more attainable. Financing companies usually offer extremely favorable deals when it comes to expensive cars with long loan terms, high loan amounts, and competitive interest rates. But are luxury cars more expensive to finance? Ultimately, yes, a luxury car will take more out of the buyer’s pocket, but that doesn’t necessarily mean the loan will be more expensive in terms of interest rates, not when financing is in question. But before we go into more details, note that Exotic Car Trader also offers financing services, and we will briefly explain how it works in the end.
Interest Rate Difference
More often than not, financing a luxury car will entail a slightly higher interest rate. That’s because luxury cars are more expensive and require longer loan terms, both increasing the risk and exposure for the lender. That said, financing a luxury vehicle through a dealership is often much cheaper than financing a normal car. That’s down to depreciation, which, in the case of financing, is entirely absorbed by the buyer. However, the more expensive the vehicle is, the more money will go towards interest, even if it’s slightly lower than that for a normal passenger vehicle. So, ultimately, financing a luxury car will, in most cases, be more expensive. An excellent credit score and credit history will help lower the interest rate substantially when buying a luxury car, but the same applies when buying an economy vehicle. That answers the question: are luxury cars more expensive to finance?
Loan Terms and Qualifications
Buying a luxury car does come with one positive side, and that’s long loan terms. While normal passenger vehicles are financed for 24 to 72 months, a luxury vehicle can be financed for 84 to 180 months. That helps lower the monthly payments by half in most cases, making it easier to finance the vehicle and get approved for a loan. But while a lower monthly debt-to-income ratio is good, it doesn’t mean much. Financing companies will look for at least a 660 credit score to finance a luxury vehicle and, depending on the loan term and credit history, a 10% to 30% down payment. Again, because luxury cars are more expensive, the down payment will take more money out of the buyer’s pocket right from the beginning, which means financing luxury cars is more expensive in that regard as well.
Alternative Loans Types and Cost Differences
Other than financing, the most popular vehicle loan type is leasing. By leasing, the buyer doesn’t intend to keep the vehicle after the term ends and is borrowing it for a set period. That ultimately costs less money because the buyer isn’t paying full price. However, leasing luxury vehicles is substantially more expensive than financing a normal car. We come back to depreciation again, which hits luxury cars the worst in the first three to four years, which is the typical leasing term. Because of that, the dealership has to increase the leasing cost much more to cover the depreciation than it would for a normal car. So, in the end, leasing a luxury car is even more expensive on average than financing it.
Final Words
Financing a luxury car is, unfortunately, more expensive in most cases. However, that doesn’t mean it’s impossible to get a good deal, or even a cheaper one, especially for buyers who have good credit scores. That’s why contacting a few financing companies and getting prequalified is always best. If you are looking for a financing deal, we invite you to fill out our secure credit application. Exotic Car Trader and its financing partners ensure fast approvals and long loan terms of up to 144 months and can even consider buyers with previous foreclosures, repossessions, and bankruptcies. If you want to buy a car without financing, Exotic Car Trader includes escrow protection, delivery, and first inspection on all vehicle purchases, and it makes the entire process as convenient as it gets.
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