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November 30, 2017

What Is Required To Qualify For an Auto Loan?

Even used cars can cost well over $10,000, so if you don’t have the money to purchase a vehicle in full. you’ve got to finance it. If you have fair credit, you might receive offers in the mail from various lenders encouraging you to apply for a car loan with a low-interest rate. Those who might be fresh out of a divorce, a bankruptcy, or a tough financial period in their life might have bad credit auto financing as an option. There are a few different requirements necessary for auto financing, but all lenders consider various customers and factors differently.

Credit Scores and Financing

People who have an 850-credit score can walk into almost any auto dealership and be approved for an auto loan on the spot. Credit is a large part of the equation when you’re looking for an auto loan lender. This is because credit is essentially a snapshot of your view and attitudes, compliance, and accomplishments, as it relates to personal finances. Those who have very little credit might be younger and inexperienced. Applicants with poor credit scores have at least made a few major mistakes in the past. If you need to improve your credit score, then you probably only need about a year of concentrated focus to make your credit scores more appealing across the board.

Your Take Home Income

Income can include whatever it is you make in your line of work, such as income from your business or your paychecks from your employer. If you are retired or disabled, then other sources of funding can be included in your take-home pay. Even spousal and child support are deemed to be income if an auto loan applicant chooses to mention them. Now that car loan durations have increased from five years to six years on average, total income is a bit less of a major consideration. Instead, auto financing companies want to know if your income is stable more than anything else. For instance, it will be difficult for you to be approved for a car loan if you have been working at your current place of employment for less than two years in many cases.

Past Auto Loan Payment History

Drivers usually only keep their vehicles for around six years. This means that most car loan shoppers have their past car loan histories detailed on their credit reports. If you made a lot of late payments on your last vehicle loan, expect to pay more in interest on your newest purchase. Repossessions and severe delinquencies are even worse for car buyers, as this type of track record can cause most auto financing providers to decline.

Drivers with a steady source of income, decent credit, and a reasonable amount of debt don’t have much trouble getting car loans. If you fail to meet any of the above-listed requirements, you might have to settle into a subprime car loan. Remember that auto loans can be re-financed and higher credit ratings lead to lower interest rates on future vehicle purchases.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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