Credit Scores and Vehicle Financing

fushigi · September 2011

Agreed. You need to find out why the loan app was rejected. My guess would be your debt-to-income ratio or you have a high amount of unused credit (empty credit cards with high credit limits).

My wife was rejected when she applied for a $21K auto loan last week. Our guess is because some things like our mortgage are in both names (though I pay it) as she has minimal debt otherwise. My income is close to 3x hers but she has a higher credit rating (by 10 points; both are comfortably above 750). Still, when we changed the loan app to joint it was approved.

Your credit score is a factor but nowadays the banks and finance companies are taking a closer look at your overall financial picture. And, to be honest, sometimes the factors they use to decide on creditworthiness aren't reasonable.

Also, the credit card thing. If you have a lot of available credit you're basically screwed. They won't give you a loan because there's risk of you racking up other debt & not being able to pay it. But, if you cancelled the high availability credit card to eliminate the risk your credit score is dinged as your available credit-to-debt ratio just got worse. You literally can't win, at least short term.

joe350 · September 2011

Thanks a lot for your time and advice. It was very helpful.

joe350 · September 2011

Thanks very much.

dtownfb · September 2011

you're welcome. My last auto loan, June 2009, for my 2006 Camry was through my credit union. Everything was done online and approval was within 2 mnutes. Nice thing about that is payment is done electronically through your account.

A financial institution that knows you is your best bet, if you don't want to deal with the dealership.

im_brentwood · September 2011

Well there's a few factors that go into a lender's decision...

1) Score. It's not the score itself. I have seen people who were barely 600s that got tier 1+ rates (Rare, but it can happen with generally very wealthy clients with lots of accounts) and I have seen 700+s that need cosigners.

It's not at all uncommon for us to see a college student with a 700+ based on 3 small limit credit cards. I've also seen people who were 800+s with recent 30 and 60 day lates bringing them down 100 points, this scares lenders.

2) The collateral. Few banks will loan money on a car older than an 03 or an 04, or with more than, say, 80k miles.

3) Your debt to income ratio. If you make $50k a year and have $2k down, good luck buying that new BMW 7 series even if you are an 800.

4) Equity. We recently had a customer who was in the high 700s who we couldn't get approved. Why? $7500 negative equity in their trade-in and $1500 down on a new Elantra GLS. No bank is going to loan $50,000 on a $30,000 car, no matter how good your credit is.

And there's other red flags, like an application that seems "odd" like someone who has always leased cheap cars suddenly looking to buy a new Escalade, or someone from Texas looking to buy a car in Ohio, etc.

Mr_Shiftright · September 2011

If you lived in Texas right now, wouldn't YOU want to go to Ohio? :P

It's ironic in a way to see lending institutions suddenly transforming themselves from their not too distant behavior akin to pirates with eye patches or dance hall girls with red dresses, into proper and sober Victorian businesspeople. You gotta laugh.

im_brentwood · September 2011

Oh it's actually funny...

There's one bank that's rather liberal in their lending practices... with regards to advance and term, but their rates are high.

Piracy ain't dead yet.

cadillacmike · December 2011

This smelled bad from the beginning, my main question was: Why didn't you have FINAL approval before you left? I have never left without final approval on a car finance. I usually have pre-approved loans from USAA and let the dealers try to match the rate and term, but if they do, its a final approval, not pending.

cadillacmike · December 2011

Sometimes your preferred bank / CU can get better, sometimes not. Back in March the best i could do was 3.4% from USAA on a 2008 for approx 16K. The dealer could get it a little lower (approx 2.9) but the total dollar difference over the two years term was too low for me to change my mind.

This past Nov, USAA was quoting the same 3.4% but on a 2009 for 33K for 3 years (max term at that rate) but GM's Ally (new name for old GMAC) offered 0.9% up to 3 yrs, same 33K amount. I couldn't pass that up. It took FIVE SECONDS for FINAL approval, and i drove of that night.

cadillacmike · December 2011

I hope this displays correctly:

"...or you have a high amount of unused credit (empty credit cards with high credit limits). "

and:

"Also, the credit card thing. If you have a lot of available credit you're basically screwed. They won't give you a loan because there's risk of you racking up other debt & not being able to pay it. "

This is not necessarily true. My wife and i have approx $200,000 total available credit on our CCs, and we got 3.4% on a loan in Mar (for 16K for 2 yrs) and me, by myself, as a sole applicant, got 0.9% on a 33,000 loan (3 yrs) in Nov. We only have about 10,000 balance on two cads (both mine) That I'm finally going to zero out in Jan. We have had one card closed by the bank in the past 5 years, for non-use. I told my wife to "exercise" the cards, every six months while i was in afghan to keep that from re-occurring.

We run thousands through the cards each month, but pay the balances off each month (except those one or two).

Again, it's more of what you do with you cards than how many or how high the total limit is. Total debt to (stated, because its not on the reports) income, as well as balance to limit ratio are also important though. I'm sure no bank would loan us anything if we had 120K balance on 200K of avail credit.

There has to be something else the proposed lender is not mentioning. Or perhaps something was left out.

yusuf1 · July 2012

Greetings all. Got a 1999 Accord with 282000 miles, a/c not working, paid off of course. Wondering what options I have if I can do no money down with a credit score in the high fives, no co-signer either. I did apply for financing at my credit union but they wanted the co-signer. Preferably payments under $250/monthly..I've been looking at cars in the $10000 range. Honda CRV is my first choice. Any tips would be greatly appreciated.

Mr_Shiftright · July 2012

Yeah, if you could get a $10000 loan at around 10%, then $250/month would be possible on a 48 month loan with no money down.

Question is, would you get 10% for 48 months with your score and no down payment? That's "iffy" IMO.

Credit unions have fairly strict requirements. If a regular bank won't help you out, you might be forced to consider the financing offered by a used car dealer (the "mouse house" they use), and that might stick you with a pretty high interest rate. Last resort, that one. Be very careful what you sign.

stever · November 2012

A reporter would like to speak with a recent buyer or current car shopper who stayed on the sidelines or was turned down for a car loan during the recession and has since returned to market or is about to buy. If you fit this description and would like to speak to a reporter, please send your daytime contact information to pr@edmunds.com no later than noon PT/3 p.m. ET, Wednesday, November 7, 2012.

carhunt07 · January 2013

Hello everyone:

I got a approved auto loan for $12062.00 from a local credit union (ufcu.org). The interest rate is 2.55% (if I have direct deposit with the union it goes down by 1%-> 1.55%

loan amount: $12062 or $11000
loan term: 24month
loan rate: either 2.55 or 1.55%
link to the calculator: https://www.ufcu.org/calc/loan.php

I run the loan calculator for loan amount $12062 (1.55% APR), it showed that my monthly payment would be $510.74

I run the same calculator again for loan $11000(1.55% APR), the monthly payment became $465.77.

I don't understand why with extra $1000 in the loan amount, my payment went up for $46.00 per month. Could someone give me some insight on this? So I understand what factors affect the loan payment. Thanks!

kyfdx · January 2013

$1062 more.... divided by 24 months to pay it back = $44.25 per month .. (plus more interest)

Higher loan amounts result in higher payments, all else being equal...

Kirstie_H · March 2013

A reporter would like to speak to a recent car buyer who purchased a car despite a bad credit report. If you have a ding on your credit report, but were still able to secure a car loan, and you would like to share your story, please send your daytime contact info no later than Wednesday, noon PT/3 p.m. ET to pr@edmunds.com.

stever · March 2013

Another press request. :-)

A reporter is looking for a new car buyer who is financing their car for 84 months or longer. If you have an 84-month or longer term, and you would like to share your story, please send your daytime contact to pr@edmunds.com no later than Wednesday, 3/6/13 at 1 p.m. PT/4 p.m. ET.

autogirl87 · May 2013

generally speaking, the longer the term of the loan, the higher the interest rate is going to be because of the depreciation of the vehicle. I found some good info on interest rates on this site: Car loans information articles

this article in particular is about interest rates : What Interest Rate You Can Expect

karhill1 · May 2013

An additional amount of $1,062 in the loan spread over 24 months equals an additional payment of $44.25 each month. Plus interest gets you to about $46.

Kirstie_H · October 2013

A reporter is looking to talk with someone who recently secured a subprime car loan. If you'd able to assist, please contact pr@edmunds.com by Thursday, October 24 2013

snakeweasel · October 2013

Car Deal Expert helps you get pre-approved for a brand new vehicle.

So does my bank, with no built in fees.

it is almost impossible to pay cash for an automobile.

It is very possible, the problem is people are either unwilling or don't have the discipline to do so.

ken117 · October 2013

Having loan information available before visiting a dealer is beneficial. However, in almost all cases it is wise to allow the dealer an opportunity to beat the loan. Dealers have resources consumers may not have which often allows the dealer to locate better financing.

It most certainly is not impossible to pay cash for a vehicle. It just takes cash.

Car Deal Expert provides a service. Such service is not free. Either the consumer will pay for the service or the dealer pays and passes it along via increased price. Such service providers are almost always best avoided. Anything these service providers can offer can be achieved by the consumer with minimal effort.

Kirstie_H · October 2013

Just a bit of spam, but good feedback from both of you!

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