People who are in a tight spot financially and looking to borrow a relatively small amount of money for an affordable vehicle might seek out a small car loan. Even with a small auto loan, the basics of car loans still apply. Additionally, lenders typically have stipulations for the minimum car loan amount you can borrow, as well as for the car you can purchase.
There are both pros and cons to small car loans, and different factors will affect the exact size of the loan you can take out. If your goal is simply to have lower monthly payments for an auto loan, you have various options available aside from small car loans.
Key Points
• The smallest car loan available can vary by lender, but some may offer loans as low as $1,000. Research different lenders to find the one that suits your needs.
• Lenders often have minimum credit score requirements. Even if you qualify for a small loan, a higher credit score can help you secure better terms and lower interest rates.
• Check with various lenders, including banks, credit unions, and online lenders, to find the best options for small car loans. Each lender may have different criteria and loan products.
• Carefully review the loan terms, including the interest rate, repayment period, and any fees. Ensure you understand the total cost and can afford the monthly payments.
• Small car loans can be useful for purchasing a used car or making necessary repairs. Plan your budget and use the loan for its intended purpose to avoid financial strain.
What Is the Smallest Car Loan You Can Get?
Although specifics vary among lenders, your minimum car loan amount generally must be at least $3,000. Note that the selling price of the vehicle can be less than this, but the total amount financed must usually be $3,000 or higher. This is true even for subprime loans, a type of car loan designed for those with poor credit (meaning a score under 580).
The reason lenders have minimum auto loan amounts is to encourage borrowers to buy themselves a car with a certain reliability, so that maintenance costs aren’t excessively high and the vehicle is dependable enough to not break down over the course of the loan.
Recommended: 9 Tips for Buying a Used Car
What Factors Affect How Big of an Auto Loan You Can Get?
There are a number of factors that affect how large of an auto loan you can get. This can include:
• Credit score
• Employment status
Auto lenders will require certain documentation to prove the information provided and to determine whether or not they will approve the loan. Documents necessary may include proof of identity, income, residence, and insurance, as well as vehicle documentation.
Recommended: Smarter Ways to Get a Car Loan
Pros of Small Car Loans
With the cost of living continually on the rise, buying a more affordable car can make sense for your financial situation. If you’re able to find a lower cost vehicle that’s dependable, using a small car loan to attain it can help you avoid the high debt payments that come with financing a more expensive vehicle.
Cons of Small Car Loans
Small car loans may seem convenient, but they come with several drawbacks. Lenders often charge higher interest rates on smaller loans, increasing the total repayment amount. Fewer lenders offer small car loans, limiting options for competitive rates. And finally, securing a small loan may require a strong credit profile or a significant down payment.
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Small Car Loan Requirements
As mentioned, most lenders have a minimum financing requirement around $3,000. In addition, most will require that you are purchasing a car that:
• Is no more than 10 years old
• Has less than 100,000 miles on it
• Has a non-branded title (meaning the vehicle does not have a car title indicating it has previously suffered serious damage)
• Is a passenger vehicle
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Getting a Small Car Loan
When getting a small car loan, you’ll generally need to meet the following car loan requirements for small car loans:
• Good credit score: Most lenders prefer a credit score of 600 or higher.
• Proof of income: Demonstrating steady income ensures repayment ability.
• Minimum loan amount: Many lenders set a minimum loan amount, usually around $3,000.
• Vehicle value: The car’s value must meet the lender’s standards.
• Down payment: A significant down payment may be required to secure the loan.
Recommended: Average Car Loan Interest Rate by Credit Score
Tips for Lowering Your Car Loan Payment
There are several ways you can lower your car loan payment aside from securing a small auto loan. This includes the following:
• Save enough money for a large down payment so the total amount you’ll need to finance is lower.
• Buy a used vehicle instead of a new one.
• Research various lenders to ensure you’re getting the lowest interest rate possible.
• Work to increase the value of your car you currently own before trading it in.
• Opt for a basic model of your chosen car, leaving behind nice but ultimately unnecessary extras like heated seats or a leather interior.
• Consider looking into how to refinance a car if you already have an auto loan but believe that market conditions or your improved financial situation could help you get a better interest rate on your loan. You also could opt to lengthen your loan’s term through refinancing to lower monthly payments.
Recommended: Pros and Cons of Car Refinancing
The Takeaway
Taking out a small car loan is an option available to borrowers who are looking to finance a low-cost vehicle that meets the requirements set by the lender. A lender’s requirements can dictate the minimum loan amount you must finance and the condition of the car you purchase. Meanwhile, a borrower’s financial situation, including their credit history and employment status, will influence how big of an auto loan they can take out.
That being said, taking out a small car loan isn’t the only way to secure lower monthly car loan payments. There are several choices a borrower can make to do so, including choosing a more basic model of a vehicle or saving up for a larger down payment. Refinancing an auto loan is another option available to lower the monthly payments.
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 is considered a small car loan?
A small car loan typically refers to a loan amount of $10,000 or less. These loans are often used for purchasing inexpensive used cars or for buyers making significant down payments. Loan terms may vary, but smaller loan amounts usually result in lower monthly payments and shorter repayment periods.
How can you get a small car loan?
To get a small car loan, check your credit score, compare lenders offering small loan amounts, and apply for pre-approval. Look for credit unions, online lenders, or banks with flexible terms. A significant down payment and proof of income can improve approval chances and secure better loan terms.
What is the smallest car loan that you can get when refinancing your vehicle?
The smallest car loan amount available when refinancing depends on the lender, but it typically ranges from $3,000 to $5,000. Some lenders may require a minimum vehicle value or loan balance to qualify for refinancing. Check with individual lenders to find their specific minimum loan amount policies.
Photo credit: iStock/zamrznutitonovi
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