Topic: Will I be approved for auto financing?

[joelj83]

Hello all,

I have a question about financing a vehicle, and it is probably one of the most common questions. Will I be approved?! I turned 18 at the beginning of this year and I got a credit card within a few days of being 18 so I could start to establish some credit. I checked my credit score online about a month or so ago and it was a 749. I can only assume that it has increased by a bit considering I've never missed a payment and don't charge much besides gas and basic expenses to it monthly. I graduated high school in June and I just started my first year of university. My university is about 45 mins to an hour away and I commute/carpool everyday. I currently share a vehicle with my sister and we go to the same university, but, we both have busy schedules with work and school so I'd like to purchase my own vehicle. This past summer I worked a lot to ensure I could save money to buy my own vehicle and as well have money to pay for my first year of school. I still work while in school,  but, I've reduced my shifts to about 3 per week. On average, I now make about $800/month in pay checks, and I work as a server so I also make tips which are about $650/month. I make about $1450 per month now that I'm in school, while during the summer months my income was higher. I know I'm going to have some advice to use a cosigner, but, I'm not really interested in doing so. If I'm going to purchase a vehicle, I'd much rather do it on my own and be responsible for the loan, rather than the person who cosigns being responsible for it. The vehicle I'm interested in purchasing is a 2012-2014 Ford focus se hatchback, I currently drive an '09 focus and I really like the styling of the newer model. I know I can find ones used from a dealership ranging anywhere in price from about $15000, or new from about $22000. So, from my credit score and income, does it look like I could be approved for a car loan? Any advice or input is greatly appreciated! Thanks everyone!

-Joel

[tooscoops]

i think due to lack of strong credit history, they will require either a strong co-signer or a big chunk down... some banks probably won't even offer the latter choice.

don't take it personal when they do it, because it's just what their systems will tell them they need. keep in mind that if you plan on making all your payments and being on time, the co-signer isn't, "responsible for the loan"... they are just on their as a security. if you are never late/missing a payment, then the cosigner will never have any reason to worry about it. it will still build your credit and if you are still hung up about having someone else on the loan, you can apply to have them removed at a later date.

you still could get approved without a co-signer... but i find with my history, they'll want one. you mentioned you had been saving up for a car... how much saved? going to put any money down?

[joelj83]

Thanks for your reply tooscoops, I forgot to mention in my post that I have saved about $10,000 over the summer, I could do a maximum $5000 down payment. I could got a bit higher than that but $5000 is comfortable for me, it would leave me with savings to pay for monthly payments and expenses. Thanks also for your insight on a cosigner, I never thought of it like that before!
-Joel

[tooscoops]

no worries. I've been selling cars for quite a while now, so i've seen enough credit apps.

with that much cash floating around, i'm sure that they'll deal with you. if you really don't want the cosigner, it just might take a big chunk of that saved cash... but that's not a bad thing. more money down means less spent frivolously as a student! while i kid, it really is good. you will be in an equity position in no time on the loan so you will be in better shape than a huge portion of the car buying public.

another thing is that you might find is that is you go new, you will have an easier time on the approval... the captive finance options tend to be lenient in their loans as opposed to the regular banks.

good luck.

[Niklasky]

Does your credit score impact the interest rate that you will pay for the loan, whether going through your bank or through the manufacturer finance system ?

Can the interest rate be negociated ? For example, I am looking at the new Subaru Outback but the interest rates are quite high, ranging from 2.9% to 3.9% (this makes a big difference in the total cost of the vehicle). I guess it's because it is a new model and they're not really giving any incentives on it because on the other hand they are offering 0.9% rates on the Impreza.

Do you think this can be negociated, or only the MSRP can be negociated ?

Thanks !

[tooscoops]

on a new car, no. there is no negotiation on the finance rate. i guess technically, any rate can be "bought down"m but you are better off just taking the rate and price negotiated.

also, 2.99-3.99 is prime or prime plus one... on an unsecured loan... on a depreciating asset... that is good. trying going to your bank and asking for a car loan from them... you will be at 6.99 unless you are using a line of credit which will most likely be secured against your home. and that is IF you have great credit.

we live in an era where anything starting above 1% is considered high... crazy talk. try talking to people who borrowed in the 80's and would have had a 20% loan on a car. basic rule i go by, if you can't afford the interest, you can't afford the car. pricing is adjusted according to the market, and that takes monthly payments into consideration which in turn, takes into consideration interest rates.

generally, your credit score can affect your rate. but usually only in steps... not like, my score is better than his, so i get a .2% break. more like, it's good, so you get 3.99. his is not good, so it's 6.99. this other guy is a high risk, so he's 11.99...

in the end... it's what the bank decides. if you are getting the loan directly, they can adjust it, but through a dealer, they can only get what the bank tells them. but don't let the rate be the decider... look at the final monthly payment.

[Niklasky]

Thanks for those clarifications.

If the rate can't be negociated, I'm wondering then why 2 cars from the same manufacturer and from the same dealer have different interest rates. At the end of the day, you are bying from the same dealer, borrowing from the same lender, perhaps even the same amount of money, so why should the rate be different based on which model you are buying ?

And if a lower rate is a way to incentivize a car, then you should be able to negotiate it, just like you do with other factors that affect the total price of the car.

[Niklasky]

And I should add that it is not a question of being able to afford the interest. A higher interest rate simply means the loan costs you more, and another similar priced or more expensive car with a lower interest rate will be cheaper to finance.

[blotter]

you will most certainly need a co-signer.

until you got the credit card you had no score.  That's how everyone starts.

once you have your first tradeline (the credit card) you have perfect score until you do something wrong.
everyone starts with good scores and earn their way down (or up - from being down)

You're current score of 749 is A credit
it's very good.  however you're at a point we consider you a "fragile A"
this simply means because your history is so short, one mistake and your score would take a big hit.

If you're financing with your personal bank / credit union they'll take (or should take) more than your credit score into account.   The relationship goes a long way.  If your parents bank there and if you have payroll by direct deposit.   

You're likely to have a better chance financing through a dealership (if buying new)
a new car usually means this is being used as security and makes approval slightly easier.
They'll likely still want a co-signer though.

My advice to continue to build your credit is to actually get a second credit card.
While I hate pushing credit cards, it's an easy way to get another tradeline.  Use it once in a blue moon to keep it active and pay whatever you put on it right away. 

when you get the car loan (even with a co-signer) that'll be a 3rd tradeline.
generally you need 3 tradelines.   
time is really the only other thing that will help. 

and always make sure you make your payments on time.   This above anything else, if missed will destroy your credit score.   Just don't miss a payment, even if it's minimum.

Whever you bank, there should be an advisor assigned to your account.
If you've never met them, you can always go in and ask for advice to build your credit.
Usually Credit Unions are very good for this. 

[Northernridge]

you will most certainly need a co-signer.

until you got the credit card you had no score.  That's how everyone starts.

once you have your first tradeline (the credit card) you have perfect score until you do something wrong.
everyone starts with good scores and earn their way down (or up - from being down)

You're current score of 749 is A credit
it's very good.  however you're at a point we consider you a "fragile A"
this simply means because your history is so short, one mistake and your score would take a big hit.

If you're financing with your personal bank / credit union they'll take (or should take) more than your credit score into account.   The relationship goes a long way.  If your parents bank there and if you have payroll by direct deposit.   

You're likely to have a better chance financing through a dealership (if buying new)
a new car usually means this is being used as security and makes approval slightly easier.
They'll likely still want a co-signer though.

My advice to continue to build your credit is to actually get a second credit card.
While I hate pushing credit cards, it's an easy way to get another tradeline.  Use it once in a blue moon to keep it active and pay whatever you put on it right away. 

when you get the car loan (even with a co-signer) that'll be a 3rd tradeline.
generally you need 3 tradelines.   
time is really the only other thing that will help. 

and always make sure you make your payments on time.   This above anything else, if missed will destroy your credit score.   Just don't miss a payment, even if it's minimum.

Whever you bank, there should be an advisor assigned to your account.
If you've never met them, you can always go in and ask for advice to build your credit.
Usually Credit Unions are very good for this.

Hmmm...what do you financiers consider to be the most credit-worthy customers based on how you access credit history/ratings?

[tooscoops]

Thanks for those clarifications.

If the rate can't be negociated, I'm wondering then why 2 cars from the same manufacturer and from the same dealer have different interest rates. At the end of the day, you are bying from the same dealer, borrowing from the same lender, perhaps even the same amount of money, so why should the rate be different based on which model you are buying ?

And if a lower rate is a way to incentivize a car, then you should be able to negotiate it, just like you do with other factors that affect the total price of the car.

the way a van has 7000 incentive and a cherokee has 0.... incentive is something that cannot be negotiated as it is a factory to delear/final customer discount. much like an impreza has .9 and an outback has 3.99... it is a factory incentive. nothing to do with the dealer level of discount.

incentive does not equal discount... that is the important thing to take away. discount is a price negotiation between dealer and purchaser that takes away from dealer profit.... incentive is from the factory and has no ties with dealer profit therefore a dealer can't do anything about it.

the reason for different rates on different models is just marketing. manufacturers have a certain amount of incentive money to apply to their vehicles. whether they spend it buying down the finance rate or give it as cash back is up to their marketing division.

hope i haven't made it more confusing...

[Great_Big_Abyss]

If the rate can't be negociated, I'm wondering then why 2 cars from the same manufacturer and from the same dealer have different interest rates. At the end of the day, you are bying from the same dealer, borrowing from the same lender, perhaps even the same amount of money, so why should the rate be different based on which model you are buying ?

The way I'm understand it (and I'm sure somebody will correct me if I'm wrong) is that the manufacturer will subsidize your interest as an incentive.

Example A:  You buy a car at 5%.  You are paying 5%, and the lender is collecting 5%.  There is no factory incentive here.

Example B:  You buy a car at .99%.  YOU are paying .99% interest, but the factory is paying another 4.01% interest.  The lender collects 5% interest.

Manufacturers may offer this low interest incentive on certain (but not all) models they have.  OR, they could offer you a cash incentive (money off the price of the vehicle), or a combination of both.

[dkaz]

I think you will get it. When you first got your credit card, your credit score was likely just as low as someone with bad credit because you haven't established anything yet. 749 takes into account the length of your credit history. Combine with the fact that car loans are often easy to get because there is collateral, and you are providing $5,000 down payment which really helps. You may have a limit as to what you can borrow because of your income.

On the other hand, at your age, I would consider a reliable preowned vehicle. I bought a 91 Corolla when I was 19 for $4,500, 11 years old with 229,000km at the time. Finally sold it when I was 25 with 365,000km on it for $800. I only put $2,000 into major maintenance/repairs for it during that time: Timing belt, water pump, clutch, alternator, and battery. So excluding minor maintenance, fuel, and insurance, the car cost me $1,000 a year to drive.

[Niklasky]

Thanks for those clarifications.

If the rate can't be negociated, I'm wondering then why 2 cars from the same manufacturer and from the same dealer have different interest rates. At the end of the day, you are bying from the same dealer, borrowing from the same lender, perhaps even the same amount of money, so why should the rate be different based on which model you are buying ?

And if a lower rate is a way to incentivize a car, then you should be able to negotiate it, just like you do with other factors that affect the total price of the car.

the way a van has 7000 incentive and a cherokee has 0.... incentive is something that cannot be negotiated as it is a factory to delear/final customer discount. much like an impreza has .9 and an outback has 3.99... it is a factory incentive. nothing to do with the dealer level of discount.

incentive does not equal discount... that is the important thing to take away. discount is a price negotiation between dealer and purchaser that takes away from dealer profit.... incentive is from the factory and has no ties with dealer profit therefore a dealer can't do anything about it.

the reason for different rates on different models is just marketing. manufacturers have a certain amount of incentive money to apply to their vehicles. whether they spend it buying down the finance rate or give it as cash back is up to their marketing division.

hope i haven't made it more confusing...

No it's great. Thank you for your patience and explanations. It really helps me understand the new car buying process a little better. I've never actually bought a new car, always used. This would be my first new car, at 37 years old.

I'm wondering now, if the low interest rate is a factory incentive and therefore non negotiable, how come then some are willing to reduce the interest rate based on the amount of your downpayment ? For example, 0.1% off the interest rate for every $1000 down, I've noticed it's quite common. Similarly for leases, return customers get a discount on the interest rate.

To all, and OP, sorry for the digression.

[tooscoops]

i actually have never dealt with any companies that offer the .1% off /1000 down. so that i can't speak on. it actually goes against bank logic, as they would prefer you to finance more (more interest to be paid)

occasionally there is a "loyalty discount" to the rate. they the same thing as the incentives i mentioned earlier. just marketing. the marketing guys figure it's better to offer 3.99% for the majority of customers and a 1% bonus for current customers rather than lowering the higher rate for everyone... just a numbers game... they are gambling that fewer than "X" number of people get to take advantage of the lower rate.

the lease buyback one is usually because they have artificially inflated the residual value of the lease... in other words, it's not worth what the factory has thought it would be worth at the end... so they REALLY want the customer to buy it out rather than the car to come back to them. best to offer them a decreased rate... doesn't show as a loss, just less potential profit. also can drum up finance reserve that otherwise would have just been paid out via cash/line of credit.

[ArticSteve]

I graduated high school in June and I just started my first year of university. My university is about 45 mins to an hour away and I commute/carpool everyday. I currently share a vehicle with my sister and we go to the same university, but, we both have busy schedules with work and school so I'd like to purchase my own vehicle

If you're in Ontario INSURANCE is going to RIP YOU a new one.  Hence all you want is a beater that you can apply the minimum coverage to.  06 Civic and above or any Corolla with a timing chain so pretty well any Corolla.    $6000 tax in should do nicely.

[blotter]

Hmmm...what do you financiers consider to be the most credit-worthy customers based on how you access credit history/ratings?

Being credit union based allows me some independance.  I get to pull a credit bureau and see everything.
This allows me not only to have a score / grade but to put together a financial picture.  Too many times someone's score isn't the entire story.  Seeing the credit bureau and having a quality conversation allows me to put a picture together. 

I've been told by a few people how some banks only allow their lenders to pull a credit bureau for the system to give a yes or no.   They don't even get to see the credit bureau.   (why it may be where it is, ect.)

In my world there's no black and white answer to being credit worthy.  Much depends on what they're applying for and why.    However one example is high ratio mortgage insurance.  Genworth will not provide a mortgage for anyone that has a 649 and under score.  649 is B (A+ being the best and E being the worse)

E = 549 and under
D = 550 to 599
both these case would likely not see any unsecured lending at all. (generally)

C = 600 to 639
this is a typing point.  Miss a bill payment and you drop to D.  Keep making payments on time and within about 4 months you should be up to B.    This is a big gray area and requires some analysing to see which way they might be going.  Even here, I'm unlike to provide unsecured lending (generally)

B = 640 to 679
This is consider decent on the low end and good at 660.

A = 680 to 749
This is a good to very good credit score.  Likely easy to lend to, assuming there's 3 years history.

A+ = 750 and higher (800s is what I call pretty much perfect)
This is great credit score / history, assuming there's 3 years history. 
At this stage you basically get whatever you want, as long as your income shows it can cover the payments.

[dkaz]

Timing belts and water pumps are not a huge issue, $800 every 145,000km for most modern vehicles. You can stretch that out even further by getting a non-interference engine, although if you wait for it to break it's $800 plus a tow.

People on the Sienna and Odyssey forums have taken risks up to 200,000km on their interference type VVT-i or VTEC engines and they turned out fine. I wouldn't recommend it myself.

[tpl]

Hmmm...what do you financiers consider to be the most credit-worthy customers based on how you access credit history/ratings?

...

A+ = 750 and higher (800s is what I call pretty much perfect)
This is great credit score / history, assuming there's 3 years history. 
At this stage you basically get whatever you want, as long as your income shows it can cover the payments.

Interesting. I checked my Equifax rating recently and would get your A+.     But not needing or intending to borrow anything it is irrelevant.   Gave up borrowing when I retired.


Sent from my iPad using Tapatalk HD

[tpl]

I graduated high school in June and I just started my first year of university. My university is about 45 mins to an hour away and I commute/carpool everyday. I currently share a vehicle with my sister and we go to the same university, but, we both have busy schedules with work and school so I'd like to purchase my own vehicle

If you're in Ontario INSURANCE is going to RIP YOU a new one.  Hence all you want is a beater that you can apply the minimum coverage to.  06 Civic and above or any Corolla with a timing chain so pretty well any Corolla.    $6000 tax in should do nicely.

I agree with Artic on this. A good cheap simple car that has cheapest possible insurance for a few years. Maybe even keep the costs down by wielding a wrench once in a while.


Sent from my iPad using Tapatalk HD