High Mileage Auto Refinancing

High mileage auto refinancing is a painful area. If you have done a Google search recently for "high mileage auto refinancing", you will probably share the thoughts and feelings that I expressed in a recent rant on my Money Talks blog - why do all the top Google search results, both free and paid listings, which appear under "high mileage auto refinancing", lead to sites which offer everything but high mileage vehicle finance?

(Update - since this Hub was written, Google has graciously placed this Hub on the first page of results, along with several blog posts which talk about it. It remains to be seen whether this situation will continue once the "recency effect" wears off. But anyway, on with the show ...)

I'll tell you why - because high mileage auto refinancing is tricky.

If the lenders can "bait-and-switch" you, it makes their life much easier. You may have noticed the plethora of sites and ads which start "Why buy an old clunker when we can finance you into a nice, newer vehicle for the same monthly payment ...?"

This is not altruism on the part of the vehicle finance lenders, let me tell you!

Lenders don't want you buying or refinancing that older vehicle with all those miles on it, because in a standard auto loan situation, the only thing the lender has to fall back on (in the worst case, if you default on your payments) is to sell the vehicle.

A car with high mileage is more likely to break down, or require major repairs, when the lender is trying to sell it to recoup some of their money back.

Human nature plays in, here, too. Borrowers are not blameless. When do you think someone is most likely to stop making their car payments?

That's right - when the sodding thing has broken down and they can't afford to repair it.

More often than not, in this situation, the lender is left with a worthless chunk of metal that they are best placed selling to a used parts dealer for pennies on the dollar.

Not a happy situation for a suited bean-counter with shareholders breathing down his or her neck about returns. These guys spend their lives working out how to avoid such unpleasant circumstances.

One way they avoid it is by placing limits on the age and mileage of vehicles they are willing to finance.

If you have a vehicle that is on the margin, sometimes you can shop around and find a lender with more generous limits.

In general, though, at the time of writing in mid-2008, if your car is pre-1997 or has done more than 80,000 miles, you are going to be classed as a high mileage auto refinancing next time you front up, cap in hand, to roll over your auto loan.

So, What Can Be Done About It?

Even if you own the sort of car that lenders hiss and boo at, you still have options.

Fundamentally, lenders are risk-averse blighters, and you usually won't be able to sweet-talk them into loosening their sphincters - I mean their lending guidelines - to allow you a standard auto loan.

Not to worry!

You can beat them at their own game, if you just learn to think like they do.

What you really need is better security than your ageing vehicle.

One often-overlooked option is simply to refinance as a debt consolidation loan, using your home or investment property as collateral. If you have equity in a property, this one is usually a walk in the park.

The lender is happy, because they have bricks and mortar as security, and you will be happy, too, because mortgage interest rates are likely to be a lot lower than auto loan rates.

If you don't already own the vehicle, you can still use refinancing your home as the cornerstone of your strategy. Just do a "cash out" refinancing, and pay for your new vehicle with cold, hard, cash. What a feeling!

You can even get your bank to give you the pile of notes, and carry it around to the dealer in a briefcase. Everybody should do that at least once in their lifetime. Talk about lasting memories ...

Just remember the old Refinancing Rules to make sure you stay out of trouble at that end!

Now, you may not own property at all.

Don't panic, all is not lost.

Banks do lend people money without having any security whatsoever at all.

Unsecured? How do they pull that off?

Well, of course, since they are taking a bigger risk, they will charge a higher interest rate. However, if it is the only option, you will have to suck it up and pay whatever usurious demands they make.

It is called an unsecured personal loan. The lender will want a statement showing your income and expenses, assets and liabilities. Usually, they will ask for pay slips and the like to back up your application, but some will take your word for it.

Don't lie on the application form, I hasten to add - that is fraud, and you can go to jail.

If you don't own property, and you can't convince anyone, not even a credit union, to give you a personal loan, you might want to take a long, hard look at whether you can really afford to own a car at all.

They are conservative sods, these bankers, but every now and then their conservatism can help to protect us from ourselves.

Still and all, if you have an older vehicle, you should usually be able to make use of one of the alternative routes to financing your auto. High mileage refinancing requires a little bit of lateral thinking, but for most folks, only a little bit.

After all, if you love your car, why shouldn't you keep it for more than ten years?

Photos: Fabio Pinheiro, rabdbomb, thebig429, Marcusrg