Are
you ready to buy your dream car this year? If you have already
shortlisted the model and are beginning the loan process, take a
breather. It is not necessary that the lender will approve you for the
total cost of the car. It is possible that you may have to lighten your
wallet and pay a part of the total amount from your savings. Let’s
understand how will the lender decide on your LTV ratio and how much
money is he willing to lend you.
How does a Lender evaluate your Auto Loan Application?
For
a lender, deciding the lending amount is pure math. When it comes to
deciding the LTV ratio, he will consider several factors and make a
practical decision. Let’s understand the factors to use them to your
advantage.
1. Credit score
Everyone
seeking an auto loan approval knows the importance of FICO score.
Lenders check your score to understand your repaying pattern. Several
late payments on your report can prove to be a red flag for the lender.
So, check your credit report beforehand. If you fall into the category
of a high-risk borrower, your loan approval amount may not cover the
entire cost of the car. In such a situation, you must work with a lender
who specializes in bad credit auto loans and seek approval on a larger loan amount.
2. Loan Repayment Capacity
Once
the lender analyses your credit report, the next step is evaluating
your loan repayment capacity. It will give an idea of your current
financial situation. The lender will use your monthly income and debts
to calculate it. Experts suggest that the debt-to-income ratio should be
below 40%. For example, if your monthly income is $5000, your total
debt should not exclude $2000. If you have higher debt, the lender will
reduce the loan amount to decrease the risk factor.
3. Value of the Car
Don’t
think lenders will forget the price of the car. If your credit score
and income do not provide comfort to the lender, he may approve you for a
smaller loan amount. Banks, traditional lenders and online auto
financing companies take help of NADA, Kelley Blue Book and other online
sources to determine the value of the car. When you are applying with
the lender, discuss whether he will include the taxation costs,
insurance premium and other miscellaneous costs to the loan amount. It
will help you to calculate the amount that you will be required to pay
out of your pocket.
LTV Ratio: Is the Lender approving you for a Smaller Loan Amount?
Car
buyers with an impeccable credit score and good income enjoy 100%+ loan
to value ratio. But, not everyone has a strong credit application. If
you want to buy your dream car, you can pay the remaining amount in the
form of a down payment. You can trade-in your old car to avoid paying
cash to the dealer. Or else, you can discuss with the lender and request
him to re-consider your application. Bringing a cosigner can help you
in making a strong point. If nothing else works, buy a cheaper car.
Remember
that if you have plans of buying of your favorite car, do not let it
remain a dream. Understand how the lender will consider your loan
application and take calculative steps to prepare for the outcome.
When you want to buy your dream car, you need to work with an experienced guaranteed auto financing company.
Do not worry about your credit score or debt. Work with a bad credit
auto loan expert to enjoy higher LTV on auto loans. Apply now; buy car without down payment.
