Loans For Auto
Getting an auto loan doesn’t have to be a difficult process. There are a number of things that contribute to whether or not a lender will approve you, the interest rate you’ll be offered, and the loan terms you’re offered.
Credit History
Your credit score and credit history are very big factors when it comes to loan approval for new and used vehicles. A new car loan carries higher principal, usually in excess of $25,000. It’s possible to obtain new car financing without good credit, but having good credit is the quickest path to auto loan approval.
If you’re looking to finance a new car your credit score should be over 700. If you’re looking to lease a new car, you’ll need an even better credit score. You’ll need at least a 750, in some cases, depending on the car, you’ll need even higher.
Used car loans don’t require credit that is quite as good. Higher scores always mean lower interest rates, but you can usually get approved for a used car loan with a credit score of 600 or higher. If your credit score is below 600, you’ll need to apply for non-traditional financing. This would include buy here pay here dealerships.
Your Income
You won’t get approved for a vehicle loan unless you have a job. You have to be able to demonstrate that you can repay the loan if you are approved. If you’re self-employed, expect to be required to show a minimum of 2 years of tax returns. Lenders will seldom accept only 1 year of returns.
Your Debt Ratio
Your debt ratio is debt divided by income, or more specifically, your monthly debt divided by your monthly net income. Only debt that is on your credit report is used to compute your debt ratio. For example, if you have $250 in monthly credit card debt, monthly student loan debt of $100, and a mortgage of $900, your monthly debt is $1,250. If you gross $3,500 per month and net $2,500 per month, your debt ratio is 50% ($1,250/$2,500).
It’s unlikely that you’ll get approved for an auto loan if your debt ratio is higher than 50%. If you’re carrying a high debt ratio, try to pay some debt down before applying for a vehicle loan.
Conclusion
Getting a new car loan requires good credit (a high credit score) and a debt ratio of less than 50%. If you don’t qualify, you may qualify for a used car loan. Used car loans can be obtained with lower credit scores and less than perfect credit.
Parent Page: Lending Finance