Guide to Auto Loans

          If you’re interested in applying for a vehicle loan there are a few

things you should know. The first step in the process is deciding your

affordable monthly payment. Deciding your affordable monthly payment

serves two purposes; it starts by helping determine what you can afford to

spend monthly on vehicle (when deciding don’t forget to take into account

insurance, maintenance, and fuel costs) and then helps to determine how

much you can spend on one.

        The second step is to determine how you will finance your vehicle.

You can finance through the dealer or your own financial institution. Most

individuals opt to finance through their bank or credit union. This is because

most financial institutions offer better interest rates. Most dealers offer what

is known as “teaser” rates such as 0% interest financing for five years to

attract potential buyers. The problem with teaser rates is most people don’t

qualify for them. Normally they require purchase of a new car, a high credit

rating, and forfeiture of any rebates. For more information on zero percent

financing please see my other articles.

           The third step is the application process. When applying for any type

of loan lenders look at several factors. Those factors are Debt to income

ration or DTI, Length of employment or LOE, length of credit history,

repayment history, and overall credit handling. Most lenders will require at

least two years job history (preferably at the same job). Your DTI also

should not exceed 40% of your gross income (before tax income). Your

length of credit, repayment, and overall credit handling history should

reflect positive payments and established accounts (accounts at least two

years or older). If there are negative items on your credit bureau, make sure

to explain the cause of these to the loan officer. This can increase your

chances of approval. Most underwriters will not hold circumstances beyond

your control against you. For instance if you have three late payments on

your credit card, you want to explain the circumstances behind why it

happened such as death in the family, loss of income or job, etc. Doing this

let’s the underwriter know that you did not intentionally miss payments (for

more information on loan decisions, please see my other articles).

 There are several items you can bring with you that will help

with the application process. If you are not self employed you will want to

bring in your two most recent pay stubs, proof of any paid collection items

 or loan payoffs, and the amount you are looking to borrow. If you are a self-

employed borrower you will need to have two years personal & business tax

returns as well as a current years profit and loss statement in addition to

proof of any paid collection items or loan payoffs, and the amount you are

looking to borrow.

           Now that you have been approved and know how much you have to

spend you can move onto the last step in the process which is selecting a

vehicle. Most lenders will require a buyers order (dealer) or bill of sale

(private sale) showing the cost of the vehicle being sold before issuing a

check. Before selecting a car make sure to do your research. When shopping

for a vehicle you want to know how much the vehicle you are intending to

purchase is worth. You can find online price guides and search them for free.

The benefit to doing this is so that you don’t overpay for a vehicle. Some

dealers price their vehicles right at retail value and by the time you are ready

to purchase you are over the retail price resulting in negative equity which is

something you don’t want. Following these simple steps can help put you in

the driver’s seat of your next vehicle.