Dreaming of a luxury or exotic car but don’t know where to start? Financing a luxury car is not that much different from financing a regular car, though—surprise, surprise—it is on a grander scale. However, luxury car financing can provide loans for larger amounts with terms up to 144 months compared to your typical auto loan.
While owning an expensive luxury car may seem unattainable for many people, there are financial options available to make your dream car a reality. Luxury cars can range dramatically in price, so narrowing down your options should be step one in order to have a clear financial goal in mind.
How to finance a luxury car
Thinking about getting an Audi, Porsche, or maybe even a Tesla? Once you’ve settled on a luxury car, it’s time to find a luxury loan!
Qualifying for a luxury loan
Car loan lenders analyze many factors, including a potential borrower’s credit score, credit history, ability to repay, and debt-to-income (DTI) ratio. Luxury car finance lenders strongly consider ideal applicants to have the following qualifications:
- Top-tier credit score: A credit score of 740 or above is regarded as exemplary. Anything below that might work, but you may have to come up with more than a 10% down payment—a 20% down payment would be desirable.
- Equivalent credit history: Lenders want to make sure you have financed something similar in the past with a proven track record of paying loans back. Preferably, financers like to see a history of an auto loan within 50% of the requested amount.
- Sensible loan term and the ability to repay: Traditional auto loan terms range from 48 to 84 months, though extended loan terms up to 144 months are possible. Be aware that the total price of the car shouldn’t exceed your annual gross income.
- Have a low debt-to-income (DTI) ratio: Your monthly DTI ratio should be less than 50% to show you can handle your monthly payments.
Don’t think you quite make the cut? Don’t worry, luxury car finance lenders look at the whole picture and will work with you. For example, if you don’t have the best credit score around, you may want to look into making more than a 20% down payment.
Securing an interest rate
Luxury car loan rates can reach up to 10% with the average term ranging from 72 to 84 months. Your interest rate will be determined by factors like your credit score, loan term, and down payment. Depending on your annual percentage rate (APR), your monthly payment could potentially be about $20 for every $1,000 that you financed.
Keep in mind that a longer loan term may mean lower monthly payments, but longer terms typically include a higher interest rate, costing you more in the end. It is best to put down a larger down payment if possible in order to secure a lower interest rate and monthly payments.
Luxury car financing options
It’s beyond crucial to shop around for luxury car financing. You don’t have to go through a luxury car dealer as they often add on a couple of extra percentage points to your interest rate. If possible, come prepared with a few offers directly from lenders to give yourself some bargaining power.
Potential lenders
Here are your main options when it comes to financing a luxury car:
- Car dealerships. While dealerships may offer less favorable rates, luxury car financers typically offer larger loan amounts and longer terms than traditional car loan providers. Not only do they provide financing designed specifically for buying a luxury car, but they may also offer incentives just to seal the deal.
- Online lenders. Online financial institutions make it super easy to find luxury car loan rates on your own time and without added pressure. And bonus: without overhead costs, online lenders may pass on savings to applicants through lower interest rates.
- Banks or credit unions. Your local or national bank/credit union that you already do business with might be another good option. But you will likely need to have a stellar credit score and a high income in order to secure a high loan amount.
Remember: Take your time when comparing auto loans. This is not the time to make a spontaneous purchase on something you cannot pay back! Look at your options and make sure you can handle the payment schedule involved with an expensive luxury car.
Luxury car finance pros and cons
As with any big financial decision, there are pros and cons to financing a luxury car. Before you consider buying the latest, greatest luxury car on the market—think about the following positives and negatives:
Pros
- Ability to get your dream car: If you can’t pay upfront for the car you want, financing is the next best option.
- Possible profit: You can use financing as leverage by only paying a small amount of the car’s value before selling. The return on your investment could be great!
- Lower opportunity costs: Financing can lower the immediate cost of buying a luxury car. Therefore, you could put that extra money toward other lucrative investments that you may not have been able to afford if you paid cash for your new vehicle.
Cons
- Interest can add up fast: Financing requires you to pay interest and fees on the money you borrow. The longer your term, the more it could cost you in interest in the end.
- Risk of depreciation: There is no guarantee that your luxury car will increase in value. Financing a pricey luxury car that loses significant value might put a damper on your loan.
- Potentially jeopardizing your credit profile: By financing a luxury car, you may not be able to take out other loans until you finish paying the current one or at least pay down the principal.
Luxury car finance alternatives
Not sure if financing a luxury car is right for you? Consider leasing! You’ll feel like you “own” a luxury car but without any long-term commitments.
Most car leases last 24 to 48 months. At the end of the lease term, you have the option to buy the car or give it back, if you so choose.
Leasing options include traditional leasing, used leasing, or a subscription service:
- Traditional lease. Go through the dealership to lease a car for a set period of time. As mentioned above, at the end of the lease you can buy it or return it.
- Used lease. You may also lease a used luxury car through a dealership or a private company.
- Subscription lease. Unlike a traditional lease, some subscription programs let you swap vehicles in a short period of time. Similarly, exotic car clubs offer monthly or yearly subscriptions with a seemingly endless amount of luxury or exotic car options.
When it comes to leasing a luxury car, you don’t have to worry about the cost of maintenance and repairs or purchasing a potentially depreciating asset. But the downside of leasing might include limited yearly mileage or paying fees for excessive mileage or damage to the car.
Key TakeawayWhether you decide to purchase or lease a luxury car, thoroughly examine your financial situation to figure out what luxury car option works best for you.
How to refinance your auto loan with Jerry
Honestly, who has time to call around or visit brick-and-mortar lenders? Not only can car insurance comparison super app Jerry help you find cheap car insurance quotes lightning-fast, but you can also quickly compare luxury car loan rates and save on your loan.
If you are looking to refinance your luxury car loan: just download the Jerry app, enter your information, and within 45 seconds or less you will gain instant access to multiple rates from top auto loan lenders. It’s that simple!
Make sure you are getting the best auto loan around with Jerry’s auto refinancing tool. Our customers are living proof of just how easy Jerry makes it to find the best coverage around:
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Mariza Morin is an insurance writer with over 10 years of experience in the writing and research industry. Mariza specializes in car insurance, car maintenance, and home insurance content at Jerry, and has over 600+ published articles that help readers handle everything from scheduling regular car maintenance to saving money. Before joining Jerry’s editorial team, Mariza earned her Masters in Library and Information Studies from the University of Wisconsin-Madison and a B.A. in Art History and Photography from the University of Texas at Arlington.
Jessica Barrett is a senior insurance writer and editor with 10 years of experience in the automotive and travel industries. A specialist in car insurance, car loans, and car ownership, Jessica’s mission is to create comprehensive content that car owners can use to manage their costs and improve their lives. As a managing editor for a team of writers and insurance specialists, Jessica has edited over 2,000 articles for Jerry on topics ranging from local insurance shopping tips to refinancing car loans with bad credit. Before joining Jerry as a senior content editor in 2021, Jessica created visual content for clients such as Expedia, Vivid Seats, Budget Direct Car Insurance, Angie’s List, and HomeAdvisor. Her content was published in Business Insider, Forbes, Apartment Therapy, and the BBC.
