SoFi

Car depreciation is something you may not think about until it’s time to refinance, sell, or trade in your vehicle. Even once you consider the concept, it can be confusing. What is vehicle depreciation and how does it impact you, as the owner of the car? Do all cars depreciate in the same way?

Car depreciation is the amount of value a vehicle loses due to age, mileage, and other factors. Below we describe how car depreciation works and provide concrete examples of how it happens.

What Is Car Depreciation?

Think about buying a vehicle, whether a new or a used car. You select a car, sign the paperwork, and get the keys. Excited about the purchase, you drive out of the dealer’s parking lot, eager to show the vehicle to friends and family members.

It is exactly at that moment, though, that vehicle depreciation kicks in. Simply put, depreciation is the steady loss in the value of your car, and it can continue throughout the entire time you own it.

This naturally raises questions, including why this happens, how much a car depreciates annually, and what cars depreciate the quickest and the slowest. Given that cars depreciate, how much is yours currently worth? What impact will that have if you’re interested in selling or refinancing the vehicle?

Let’s dig in to answer those questions about depreciation and more.

Recommended: Car Loan Terms Explained

Calculating Depreciation on a Car

Calculating depreciation on a car is relatively simple. The depreciation formula takes the car’s original sales price and compares it with the current appraised value of the vehicle. The below table highlights how this may work in practice:

It’s also worth pointing out that cars on some occasions may appreciate in value, especially during times of high demand and global supply chain bottlenecks.

If the current value of a vehicle is greater than the vehicle’s original sales price, that means the vehicle appreciated in value. Keeping your vehicle in excellent condition and enhancing its features — such as upgrading the tires — may promote an increasing car value.

Recommended: Guide to Selling a Car With a Lien

Why Do Cars Depreciate in Value?

The concept of automobile depreciation is connected to the vehicle’s resale value.

Think of it this way. If you bought a brand new car on the first of the month and tried to sell it back on the 15th of the same month, you likely wouldn’t get the same amount of money that you originally paid for the vehicle. Why? Because you bought a new car and would be selling back a used one. The car’s resale value is less than its original sale value. That’s depreciation.

Secondhand cars are also subject to depreciation, although at a lesser rate.

When you’re focusing specifically on new cars, there’s another reason that they depreciate. Models come out annually, typically with new features and technologies. That means that last year’s model quickly becomes outdated.

Furthermore, for both new and used cars, as more time goes by, more wear and tear occurs, more miles are put on the vehicle, and more maintenance and repairs are needed. All of that leads to even more depreciation.

Recommended: Luxury Cars With the Lowest and Highest Maintenance Costs

How Much Does a Car Depreciate Each Year?

Looking specifically at new car depreciation rates, a study by iSeeCars notes that not all of them depreciate on the same timeline. Sports cars, for example, tend to depreciate more slowly than high-maintenance luxury sedans.

That said, iSeeCars found that the average five-year-old vehicle depreciated by 45.6% in 2025, which is more lost value than in 2023 (38.8%). This makes depreciation the single greatest “cost” of owning a vehicle.

To break it down a little more, a brand new car typically loses between 9% to 11% of its value as soon as it’s driven off the lot. After a year, about 20% of its value is lost to depreciation.

There are, of course, vehicles that depreciate less than the average amount, and an iSeeCars executive analyst advises that if someone plans to sell a car within the first five years of ownership, then picking one that maintains its value (i.e., depreciates less) is a smart financial strategy. It’s also possible that a vehicle may appreciate in value, which occurred during the Covid-19 pandemic when global supply chain bottlenecks gave some used cars greater resale value.

Cars With the Highest and Lowest Rates of Depreciation

When it comes to the lowest rates of depreciation, Kelley Blue Book — a vehicle valuation and research company — has listed these five vehicles as the 2025 Best Resale Value Cars:

•  Honda Civic

•  Honda Accord

•  Chevrolet Corvette

•  Acura Integra

•  Lexus ES

The iSeeCars study lists the following as vehicles with the lowest depreciation:

•  Porsche 911

•  Porsche 718 Cayman

•  Toyota Tacoma

•  Chevrolet Corvette

•  Honda Civic

The cars with the greatest vehicle depreciation in 2025, according to iSeeCars, are as follows:

•  Jaguar I-PACE

•  BMW 7 Series

•  Tesla Model S

•  INFINITI QX80

•  Maserati Ghibli

Recommended: Complete Guide to Car Appraisals

How Does Car Depreciation Impact You?

Having an asset lose value can impact your net worth. Owning a vehicle is owning an asset, and having one of your assets lose value is not beneficial to your personal net worth. Car depreciation impacts you by reducing the value of your motor vehicle.

Car depreciation diminishes the resale value of your vehicle, which lowers the amount of money you may earn from selling your used vehicle. Car depreciation can also lower the amount of money you may borrow from a title loan lender.

What’s Your Car Worth?

Online car valuation resources that take depreciation value of cars into account while estimating what a car is worth include:

•  Kelley Blue Book

•  Edmunds.com

•  Carfax.com

•  Consumer Reports

•  JD Power

Recommended: Paying the Principal on a Car Loan

When Do You Need to Know About Depreciation?

There are a number of scenarios in which depreciation plays a factor:

When You Want to Trade In a Car

When you’re planning to trade in a car to help finance another vehicle, the dealership will make an offer that takes into account your trade-in’s depreciation. Since offers can vary by dealership, it’s a good idea to compare several before making a decision.

When You Want to Refinance an Auto Loan

A vehicle’s value also comes into play when you’re refinancing an auto loan. Lenders will look at the loan to value (LTV) ratio associated with your vehicle when they review the refinance application. LTV is the total dollar value of the loan (in this case, the refinance loan) divided by the vehicle’s actual cash value.

If, for example, someone wants to refinance a vehicle with a loan amount of $8,000 and it’s worth $10,000, then that vehicle has an 80% LTV. If a financial institution would loan up to 80% on a car refinance, then this vehicle and loan would fall within those parameters. If the loan amount was $9,000, however, that would be an LTV of 90%, which doesn’t fit within what our theoretical financial institution would refinance.

Also pay attention to the car loan interest rates being offered on refinances, as well as the annual percentage rates (APRs). Other issues to compare include loan repayment terms, loan fees such as origination fees and any prepayment penalties, and any closing costs.

Recommended: Can You Refinance a Car Loan With Bad Credit?

Is it Possible to Reduce Car Depreciation?

Yes, it’s possible to reduce car depreciation by keeping your vehicle in excellent condition. Driving less may also reduce the rate of depreciation by minimizing the mileage clocked on your odometer. Keeping your vehicle clean and well-maintained can reduce car depreciation, whereas poor maintenance can bolster the rate of depreciation.

Recommended: How to Increase the Value of Your Car

The Takeaway

Cars depreciate from the moment they’re driven off the dealer’s lot, but depreciation occurs more quickly with some vehicles than others. For example, new car depreciation takes place more quickly than depreciation on used ones, and luxury sedans lose value more quickly than sports cars.

There are easy ways to get a general value of your vehicle that takes car depreciation rates into account. This becomes important when you’re selling or refinancing the vehicle.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

At what age does a vehicle depreciate the most?

Vehicles generally depreciate the most in their first 12 months of ownership. A brand new car typically loses between 9% to 11% of its value as soon as it’s driven off the lot. After a year, about 20% of its value is lost to depreciation.

Should I sell my car before it depreciates?

Selling your car before it significantly depreciates can help maximize its resale value. Cars typically experience the steepest depreciation in the first few years, so timing the sale just before major value drops — such as reaching a higher mileage bracket — can minimize losses and ensure better returns.

Do some cars depreciate faster than others?

Yes, some cars may depreciate faster than other cars. A new car may depreciate faster than a used car, and luxury cars may depreciate faster than sports cars. A car with poor fuel economy may depreciate faster than a car with excellent fuel economy.

Photo credit: iStock/igoriss

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-111

Most cars come with air conditioning as a standard part of the trim package. Car A/C systems can be relatively expensive, as they have to be capable of cooling your car from relatively high temperatures in a short period of time. One critical, and particularly pricey, component of the A/C system is the A/C compressor. The average cost of replacing an A/C compressor is currently $1,000 to $2,000.

Here’s a look at what you need to know about A/C compressors and the factors that affect replacement cost.

Car A/C Compressor Overview

Your car’s A/C system works by manipulating a chemical refrigerant between a liquid and gaseous state. This is done through the control of temperature and pressure. During that process, the A/C system absorbs heat and humidity, which allows the system to pump cool, dry air in your vehicle.

The A/C compressor is located at the front of the engine and is powered by the serpentine belt. It takes in low-pressure gas and compresses it to high-pressure gas, which is also a higher temperature.

From there, the gas is sent to the condenser where it is cooled and changes to a high-pressure liquid. There, forced air is used to transfer heat away from the system.

The A/C compressor has a number of parts that can fail. One is the compressor clutch, which engages or disengages to turn the compressor on or off. Other parts that can fail include bearings within the clutch, the seal within the A/C compressor, and finally, general wear and tear which can lead to additional mechanical parts failing.

If your A/C is no longer working and only blowing hot air, it could be a sign that your A/C compressor needs to be replaced.

Cost of Replacing an A/C Compressor

The cost of replacing an A/C compressor typically ranges from $1,000 to $2,000. Cost will depend in part on whether you replace your failing compressor with a part of a remanufactured compressor or if you replace it with a brand new one.

A remanufactured compressor is a used part that’s been taken apart, thoroughly cleaned and repaired, and put back together. This option may save you money on replacement costs, but it may not last as long as a new compressor would.

You may only want to consider a remanufactured compressor as a short-term option or if you don’t plan to drive your car for much longer.

Your A/C compressor clutch can potentially be replaced on its own, but in many cases, it’s more cost effective to replace the entire unit.

Factors That Affect New A/C Compressor Replacement Cost

Other factors also play a role in replacement costs, including the make and model of your car and labor costs.

Make and Model of Car

If you have a common and affordable vehicle, your costs could be lower since the replacement part is likely to be more readily available. However, if you have an uncommon make or a luxury vehicle, it may be more expensive to replace your A/C compressor.

Labor Costs

The cost of hiring a mechanic typically adds $200 to $300 or more to the price of A/C compressor replacement. Consider that if you’re mechanically inclined, doing the project yourself could save you hundreds of dollars.

If you’re not confident in your ability to make auto repairs yourself, take your car to a trusted auto shop.

Additional Repairs Needed

If your A/C compressor is failing, it’s possible that other parts of your A/C may be in need of repair, as well. Additional repairs may include the condenser, the dryer, the metering device, and the evaporator. Each part could tack on a substantial sum to your final bill. For example, replacing the evaporator could cost $700 to $1,200 or more.

What Impacts a Car’s A/C Compressor’s Performance?

How much you use your A/C could have an impact on its long-term performance due to wear and tear.

There is no maintenance that you can perform that will make your A/C compressor last longer. However, it is driven by the serpentine belt, so make sure that it is installed properly so the parts that run off it can continue to run smoothly.

How Do You Know It’s Time to Replace Your A/C Compressor?

The most common symptom of a failing A/C compressor is that your A/C won’t deliver cold air. Other signs it’s time to replace your A/C compressor include being unable to turn your A/C off, your check engine light coming on, or hearing a screeching sound coming from the belt.

Recommended: Costs to Repair a Catalytic Converter

Where Can I Get My Car’s A/C Compressor Replaced or Repaired?

You can get your A/C compressor replaced or repaired at your car’s dealership or at a local auto shop. If your car is still under warranty, take it to the dealership to have the compressor replaced.

However, if you are no longer under warranty, taking your car to the dealership may be more expensive than using a trusted mechanic at a local garage.

Can You Replace Your Own A/C Compressor?

Yes, you can replace your own A/C compressor. However, doing so will require familiarity with the inner workings of your car and mechanical ability. If these aren’t words you’d use to describe yourself, you may want to take your car to an auto shop to ensure your replacement parts are properly installed.

Can You Drive With a Broken A/C Compressor?

It is not recommended to drive with a broken A/C compressor. In most cars, the A/C compressor is run by the serpentine belt. If it’s not working properly, the belt may not be able to spin as it is supposed to. The belt drives other important components of your engine, so if it can’t spin properly, you must have it fixed.

Recommended: Financing a Used Car With Over 100,000 Miles

Financing a New A/C Compressor

If you’re looking for room in your budget to cover this cost, consider refinancing your car loan. When you refinance, you pay off your old loan with a new one — hopefully one with a lower interest rate or perhaps with more favorable terms. You can put that interest rate savings toward car repair.

You could also increase your loan term, reducing your monthly payment. However, when you do so, you increase the number of months you’ll be paying interest, which can increase the overall cost of your loan.

And finally, you could consider a cash-out auto refinance, which gives you cash back from the loan. This money can then be used to pay for a new A/C compressor.

Recommended: Guide to Car Depreciation

The Takeaway

The A/C compressor is a critical component of your car’s A/C system. When it fails, your A/C won’t work, and unfortunately, the serpentine belt that drives other components of the engine may not run as it is supposed to. Fixing your A/C compressor can be a major hit to your wallet, costing as much as $2,000 or more. To pay for this kind of work if you don’t have enough in savings, you might consider refinancing your auto loan.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

Is it worth it to repair your car’s A/C compressor, or should you replace it?

You could potentially fix your A/C compressor, but the cost of repair may be relatively high, making replacement a better long-term solution.

How long do A/C compressors last?

Your A/C compressor only needs to be replaced when it fails, and it should last 150,000 to 200,000 miles.

Is an A/C condenser and an A/C compressor the same thing?

The A/C compressor is not the same as the A/C condenser. The compressor compresses the refrigerant into a high-pressure, high-temperature gas, while the condenser allows the gas to cool and turn into a liquid.

Photo credit: iStock/Bohdan Bevz

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOALR-Q325-110

Your timing belt is critical to your engine’s ability to run properly. If it breaks, your engine will stop running immediately and there will likely be damage to other components. That’s why replacing your timing belt is part of regularly scheduled maintenance every 60,000 to 100,000 miles.

Replacement costs can run between $800 and $1,300 as long as you replace your timing belt before it breaks. Costs can be much higher if the belt breaks while your vehicle is running.

Here’s a look at the factors that can affect timing belt replacement cost and signs to look out for that can signal your timing belt needs to be changed.

What Does a Timing Belt Do?

A car’s engine works when a mix of fuel and air combusts inside the engine’s cylinders, which pushes out the pistons that turn the drive shaft. Intake and exhaust valves open and close, allowing the mixture of air and fuel to enter the cylinder and the gases that result from combustion to exit the cylinder. The timing belt ensures that the intake and exhaust valves open and close at the exact time needed.

The timing belt has teeth on it that interlock with the timing gears on the crankshaft and the camshaft. A tensioner holds the belt tight so that it doesn’t skip any teeth, which can be known as jumping time. The timing belt may also turn a gear that powers the water pump.

How Much Is It to Replace a Timing Belt?

The average cost of timing belt replacement is $800 to $1,300. That said, depending on different factors, costs could easily range upward of $1,300 or more. If your timing belt breaks before you replace it, the damage could cost you several times more, as much as $3,000 to $5,000. In some cases, the cost of damage caused by a timing belt break could be more than the value of your vehicle.

If your timing belt breaks while your car is under warranty, your warranty may cover the cost of replacement.

What Affects How Much It Costs to Replace a Timing Belt?

The cost of replacing a timing belt varies according to a variety of factors, including:

Parts Price

Parts and labor are the two main factors that go into how much it costs to fix your timing belt. On average, you can expect parts to cost between $290 and $406.

Your mechanic may suggest that you replace your water pump — which is driven by the timing belt in many vehicles — at the same time, which could cost an extra $100. Doing so may be worth it since your mechanic will already have taken the time and labor to expose the pump.

Labor

Replacing a timing belt takes roughly three to five hours, and you can expect to pay $584 to $857 on labor costs alone. Labor costs can vary depending on where you live and the complexity of the job.

Additional Costs

Your timing belt typically needs to be replaced due to wear and tear associated with driving your vehicle, or about every 60,000 to 100,000 miles. Other parts will likely be wearing out at the same time and your mechanic may suggest replacing them, as well.

Also, if your timing belt breaks, your engine will stop working immediately. In this case, you’ll need to cover the cost of towing your vehicle to your mechanic.

Recommended: The Cost of a Replacement Engine

Signs It’s Time to Replace Your Timing Belt

Your timing belt doesn’t always give you a signal that it’s going to break. Often, the rubber gets old and brittle and simply snaps. However, there are a few warning signs that you should pay careful attention to.

Ticking Sounds

Your timing belt is connected to pulleys on the crankshaft. A timing belt that’s wearing out may not turn them properly, causing a ticking sound.

Recommended: Guide to Crankshaft Repair and Replacement Costs

Engine Starts Suddenly Leaking Oil

A series of nuts hold your timing belt in place. If these get loose, oil can start leaking around the timing belt cover, which can cause the engine to overheat.

New Vibration or Shaking Sensation

A failing timing belt can cause your vehicle to shake or vibrate while moving or idling, and can be a good sign it’s time to have a mechanic investigate your engine.

Engine Feels Less Powerful

A failing timing belt may cause your engine to misfire, as your cylinders can get out of sync. It can also cause your vehicle to perform poorly, which you may notice if you get less power when you press the accelerator.

Trouble Starting the Vehicle

If you can’t start your vehicle, it could be a sign that your timing belt is broken.

Trouble Keeping Vehicle Cool While Running

Your timing belt can help power your water pump. If it’s not working correctly, your engine can overheat. An overheating engine risks damage to other engine parts, so it should be checked out immediately.

Can You Drive With a Bad Timing Belt?

You should not drive with a failing timing belt. If it snaps while you’re driving, your engine will stop, which could put you in a very dangerous position. A broken timing belt can have a ripple effect on other engine components, as well, damaging other parts that will have to be replaced.

Recommended: Cylinder Head Replacement Cost Guide

Financing a Timing Belt Replacement

To cover the cost of replacing your timing belt, you may consider financing with a personal loan or a cash-out auto loan refinance.

A personal loan for car repairs is a type of unsecured installment loan that allows individuals to borrow money to use for auto repairs and other uses. Borrowers agree to pay back the loan in regular monthly payments with interest.

When you refinance a car loan, you pay off your old loan with a new loan, preferably one with a lower interest rate. You may consider refinancing when interest rates have dropped or you’ve built your credit score, helping you qualify for a lower rate. A lower interest rate helps you save money each month, and you can put those savings toward auto repairs.

Another option is a cash-out auto refinance, which allows you to refinance your vehicle and get cash from the loan. You can then use the cash to pay for the repair.

The Takeaway

The cost of a timing belt replacement can vary significantly based on the make and model of your car, with prices typically ranging from $800 to $1,300. Regular maintenance and timely replacement of the timing belt are crucial to avoid more extensive and costly engine damage.

If you can’t afford to replace your timing belt upfront, you might consider a personal loan for auto repairs or a cash-out auto refinance. Either option can help cover the cost of the repair.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

How long will a timing belt last?

Timing belts typically last between 60,000 and 100,000 miles.

How can I prevent my timing belt from failing?

Unfortunately, your timing belt will eventually wear out, but you can prevent it from failing while you’re driving by replacing it during regularly scheduled maintenance. The maintenance schedule should be laid out in your owner’s manual.

Can I replace my timing belt with an aftermarket one?

Aftermarket parts are not made by the original manufacturer. It is possible to replace your timing belt with an aftermarket timing belt, but it is critical to make sure that it is high quality, that it meets vehicle specifications, and that any necessary adjustments are made.

Will my insurance cover the cost of a timing belt replacement?

Your insurance does not cover regularly scheduled maintenance. If your timing belt is damaged in an accident, your insurance may cover it.

Photo credit: iStock/Михаил Руденко

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-109

A second chance car loan, also called a subprime auto loan, is a type of car loan designed for people with fair, poor, or bad credit scores. It’s also a way for people to get auto loans after bankruptcy, repossessions, and other experiences that may have had negative consequences on their credit.

Every lender has a different definition of subprime credit, so your approval for second chance loans will vary. The Consumer Financial Protection Bureau defines a subprime credit score as 619 and below, while FICO® classifies it as below 670. Those with bankruptcies or repossessions on their credit history may also find difficulty getting auto loans.

While a second chance auto loan is generally not as good as one you’d get with a good credit score, it may be what you need to get back in the driver’s seat.

How Do Second Chance Car Loans Work?

Second chance car loans, also known as subprime auto loans, work much like a traditional auto loan.

You’ll apply to a lender to borrow a certain amount of money for a particular car. The lender then evaluates your level of risk based on credit history, credit score, income, and more.

Every lender weighs these factors differently. Once approved, the lender will let you know the terms of the loan. You don’t have to commit to the offer until you sign it.

Pros of Second Chance Car Loans

Besides waiting to build your credit, second chance car loans might be your best and only option to finance a car if traditional auto loans are unavailable.

These loans can also offer a chance to rebuild credit score: Banks and credit unions usually report on-time payments to credit bureaus, whereas “buy here, pay here” dealers usually do not.

Cons of Second Chance Car Loans

The main pro of a second chance car loan is the opportunity to finance a vehicle. There are cons to these loans, though, including:

Higher Rates

Second chance car loans typically means higher interest rates and extra fees. Lenders may also ask you to pay a larger down payment than it would be for a traditional auto loan.

No Chance to Rebuild Credit Score

Not all second chance lenders report to credit bureaus, which means you wouldn’t be able to use it as an opportunity to build your credit. Additionally, some dealers only report late payments and not on-time payments.

Special Conditions

The borrower may have to agree to special conditions before finalizing the second chance auto loan, such as having starter interrupts installed, which can be used to remotely disable the car if timely payments aren’t made.

Requirements for a Second Chance Auto Loan

Unlike traditional auto loans, you don’t need a very good credit score to be eligible for second chance car loans. In fact, some lenders (typically credit unions) will base your approval on your financial ability to make payments, rather than your credit score.

It’s advisable to check with your lender to see what you’ll need to bring to apply. You’ll likely need two valid forms of identification, proof of income documentation, and your Social Security number. You will also need information on the specific car, such as make, model, year, and VIN number. The better prepared you are to provide such documentation, the quicker they’ll be to send an offer.

Refinancing an Auto Loan vs Second Chance Auto Loan

Refinancing a car loan with bad credit is not the same as getting a car loan in the first place if you have bad credit. Essentially, the auto loan refinance process helps people find a way to pay off their existing loan with more favorable interest rates and/or terms. The goal of a second chance auto loan is finding any loan when you have subprime credit scores.

Recommended: Guide to Car Loan Interest Rates

When Is It a Good Idea to Get a Second Chance Auto Loan?

If you really need a vehicle to get to a job and have subprime credit, a second chance auto loan might be your best and only option. With that said, you now have the task of deciding whether it’s worth it. Here’s what you should consider:

Affordability

You’ll need to know if you can afford paying the down payment and loans on time, given your current income and expenses. Think realistically about other costs that come with the car, such as auto insurance premiums, registration, and repairs.

Recommended: Cheapest Car Insurance Companies: Find Cheap Car Insurance for You

Length of the Loan

The length of the loan matters arguably more for second chance loans, as the cars purchased are typically older with more mileage. You’ll want to consider whether the length of repayments will outlive the life of the car. The length of the loan may also impact the amount of interest you’ll pay.

Quality of the Loan

You should consider whether the deal is fair. Don’t take one dealer’s word for it. There are many lenders out there, so pause before you rush to complete a deal. Before you even visit a dealership, see what deals are available from banks, credit unions, and online lenders.

If you don’t need a car immediately, try building your credit score over at least a few months to become eligible for a better auto loan. Holding a job, practicing responsible credit card use, and being an authorized user on a responsible friend or family’s account all look very attractive to lenders. Even a month of good practices can make a difference.

Recommended: Understanding Auto Loan Settlements

When Is It a Good Idea to Refinance an Auto Loan?

It’s a good idea to refinance an auto loan once you’ve built your credit score and you won’t have to pay any prepayment penalties.

You’ve Built Your Credit Score

You’ll want to have a higher credit score from when you got your loan. Most lenders won’t refinance your loan until you have at least fair credit (580-669). There’s a bigger upside if all of your payments from the auto loan are reported to the credit bureaus.

No Fees and Prepayment Penalties

You should familiarize yourself with your current loan’s fees and prepayment penalties, if applicable. If you have prepayment penalties on your existing loan, it may not be worth it to refinance your auto loan.

Recommended: What Are Small Car Loans?

The Takeaway

Second chance car loans can help you finance a car, even if you don’t have a good credit score. The catch is that second chance auto loans usually provide loans at higher interest rates. To help you seek the best loans, look for lenders with competitive rates who will report on-time payments to the credit bureaus and don’t penalize for early payments, as these can be great options for refinancing your second chance car loan down the road.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

How can you get a second chance auto loan?

You can apply for a second chance auto loan online or in person, through banks, credit unions, dealerships, and other lenders. The process is nearly identical to that of a traditional auto loan. Just make sure you have all of the necessary documentation and information prepared. Finally, you’ll want to compare rates and loan terms to competitors.

What are the requirements for a second chance car loan?

You don’t need a very high credit score to qualify for a second chance auto loan, but requirements vary by lender. In terms of the application process, you’ll likely need forms of identification, proof of income, and proof of residence. You can bring in pay stubs and other appropriate documentation directed by the lender to verify the information on your application.

What are the pros and cons of a second chance auto loan?

The pro of a second chance auto loan is that it provides those with poor credit a legitimate loan option that may help them have access to a vehicle and build credit. The cons are that second chance car loans typically have high interest rates, fees, and they may hike up your down payment, plus some do not report positive information to credit bureaus.

Photo credit: iStock/Mariia Vitkovska

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-108

A car’s title is a certificate that shows proof of ownership and includes identifying information about the vehicle, such as its make, model, and vehicle identification number (VIN).

A salvage title is a special type of car title that is given to a vehicle that has sustained significant damage in an accident, flood, or other unfortunate circumstance. Typically, the damage is so extensive that the car is deemed unsafe to drive on public roads.

How do you know if a car has a salvage title? Should you buy a car that has a salvage title? Read on to learn more about how a salvage title works, how it affects the value of a car, and whether you can get financing for a salvage title car.

What Does Salvage Title Mean?

If the car has a salvage title, it means that it has been subjected to enough damage in the past that an insurance company has declared it as a total loss. The previous owner may have been in a serious accident, or the car may have been damaged as a result of theft, fire, vandalism, hail, or a flood.

Depending on your state’s laws, a car is considered a total loss when the repairs would cost more than its pre-damaged fair market value. Salvage titles exist so that consumers who purchase vehicles are aware of that car’s history and any potential problems that could result from it.

Recommended: Auto Loan Refinance Calculator

How Salvage Titles Work

If your car has been severely damaged due to a collision or other incident, your auto insurance company may decide it isn’t worth repairing and declare it a total loss. At that point, either you or your insurer will need to get a salvage title for the car. Which party does this will depend on who plans to retain possession of the vehicle.

You apply for a salvage title through your state’s department of motor vehicles (DMV). While the process varies depending on the state, it generally involves filling out an application, paying any required fees, and submitting the car to a salvage vehicle examination to assess the extent of the damages and the vehicle’s overall condition.

If you have a salvage title car, you may be able to sell it for parts. If you want to drive it again, however, you’ll need to repair it and make it safe again. If you opt to go the repair route, it’s a good idea to document the repairs so you can provide proof of the work when you apply for a rebuilt title.

To get a rebuilt title, you’ll need to apply at the DMV and get the car inspected. If it passes inspection, you are granted a rebuilt title. And of course, doing repairs will likely improve the value of your car.

Are Cars With Salvage Titles Damaged?

Yes. Cars with salvage titles have generally sustained enough damage that an insurance company has decided the repair costs would be close to or exceed the car’s value and, therefore, it would not make economical sense to cover the repairs.

However, if the vehicle has a relatively low market value, even minor damage could result in the insurer calling it a total loss. For example, a car that has a fair market value of $3,000 may have sustained only moderate damage (or just cosmetic damage) for the repair cost to exceed the car’s value.

Recommended: Timing Chain Replacement Cost

Pros of Salvage Title Cars

There are actually some advantages to purchasing a vehicle with a salvage title. Here are some to consider.

•  A low price tag. These cars will typically sell for prices far below similar cars with clean titles, which is part of understanding the value of a car with a salvage title.

•  The damage may not be that bad. You could get lucky and find a car with a salvage title that has minimal damage or just cosmetic damage. Or you might find an older car that was considered a loss by the insurer simply because it had a low market value, not because the repairs were all that costly.

•  It may be worth buying for parts. With the high cost of auto parts, it might be worth buying a car with a salvage title to get parts for another car you own and/or parts to sell.

Cons of Salvage Title Cars

Despite some advantages of purchasing a vehicle with a salvage title, there are some definite drawbacks. Here are some to keep in mind.

•  It may be more damaged than it looks. Some damage may not be immediately apparent. The seller must disclose that the vehicle has a salvage title, but it’s up to the buyer to determine the exact extent of the damage. If you’re thinking about buying a salvage or rebuilt title vehicle, it can be a good idea to have it checked out by a mechanic you trust to help spot any potential issues before getting the title signed over to you.

•  Repairs could be costly. There’s a reason why the car got a salvage title. It needs repairs, and these repairs could cost a lot of money when you factor in parts and labor. Also, if the car has a salvage title, it’s no longer legal to drive on the road. To regain legal status, the car must pass an inspection approved by the state once it’s repaired.

•  It may be difficult to get insurance. Not every insurance company will insure a car with a salvage or rebuilt title. If you find one that will, they may offer a liability-only plan that won’t cover the damage to your car if you get in a collision.

Recommended: What Does a Lemon Car Mean?

Determining If Your Car Has a Salvage Title

The easiest way to tell if a car has a salvage title is to look at the title itself. It will typically be clearly marked as salvage. It may even state the specifics, such as if the car went through a flood.

If you don’t have access to the car’s title, there are other ways to investigate a car’s history. One is to request a history report from CarFax or another independent reporting site using the car’s VIN. You can find a car’s VIN stamped on the dashboard near the windshield, on a plate or sticker on the driver’s side door jamb, or stamped on the engine’s firewall.

You can also enter the car’s VIN into the National Motor Vehicle Title Information System to get more background information on the car.

Recommended: What to Do if You Lost Your Car Title

Can You Refinance Salvage Title Cars?

It might be possible to finance or refinance a salvage title car, but it won’t be easy. Auto loans typically use the vehicle as collateral for the loan. This means the lender can repossess the car and sell it if you stop making payments. A salvage title car doesn’t have a high value, making this type of financing riskier for a lender.

There are a few specialty lenders that offer these loans, but you will likely have to make a large down payment and pay a high interest rate. By fixing the car and getting a rebuilt title, it will likely be easier to refinance your auto loan.

Recommended: Can You Refinance a Car Loan With Bad Credit?

The Takeaway

A salvage title means that the car has extensive damage and is no longer roadworthy. However, if it gets repaired and passes a state inspection, it may qualify for a rebuilt title.

While there are risks involved in purchasing a salvage title vehicle, there is also a chance that you could profitably rebuild and resell a salvage title car, or make money by selling off the car’s parts. Just keep in mind that finding a loan to finance or refinance a salvage title car may be difficult.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What’s a salvage title?

A salvage title indicates that a car has previously been declared a total loss by an insurance company. It must be repaired and receive a rebuilt title in order to be operated legally.

Does having a salvage title reduce the value of your car?

Yes, having a salvage title reduces the value of your car because it indicates that your car has been damaged to the point that repairs will cost close to or more than the car was worth prior to the damage.

Do car loans for cars with salvage titles qualify for refinancing?

Possibly. However, finding a lender who will refinance a salvage title car can be difficult. Large banks tend to be leery of approving loans for cars with salvage titles. And while there may be smaller banks and credit unions that will refinance a vehicle with a salvage title, it’s more likely you’ll need a specialty lender, and rates may be high.

Photo credit: iStock/ThamKC

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-107