When shopping for an auto loan you should know what the banks are looking for in every consumer loan that they approve. If you have some sort of idea of what the banks are looking for then you will have a lot higher chance of getting approved regardless of whether your credit is bad or average.So here are the terms you will need to know about while shopping for the new or used car of your dreams:o Fico Scoreo Debt to Income =DTIo Payment to Income=PTIo Loan to Value= LTVo Down Paymento Job time/Job Stabilityo Number of Recent Inquireso Type of Bankruptcyo Time since Bankruptcyo Time since Auto loan repossessiono Time on Credit bureauFico Score: is a score that the credit bureau assigns to your credit based on an algorithm that takes into consideration a number of things on your credit like: time on credit bureau, number accounts current, number accounts passed due, number of accounts that were passed due, number inquires, number of inquires in the last six months, percentage of revolving available unsecured credit, bankruptcy’s, auto repossessions, foreclosures, collections, or any overall bad credit. There is no set way to predict what your credit score is going to be but there are a few things you can due to increase your credit score. The first thing to due when trying to get a better credit score is to pay your bills. I know it’s a novel idea paying your bills might help your credit but it true. Secondly if you have credit available on your credit cards keep it that way. The main thing that the credit bureaus take into consideration when it comes to your credit cards other then them being current is how much of your credit card credit that you have available on your credit cards. It is a good idea to keep at least half of you total available credit available. It is a good idea to check your credit before you head out to the dealers or apply online. If your score is below 600 expect to fall in to some of the sub prime auto loan programs which means you will probably not qualify for the best of interest rates. If you score is below 520 then you are going to have trouble getting approved through the normal channels at auto dealership, normal bank or website that you can apply for online. If your score is around 600 or even below 520 then your best bet is to apply for auto loan through a website that puts you in touch with the right dealers that use the correct lenders for sub prime credit. One website that specializes in helping consumers with bad credit is http://www.shotcredit.com.Debt to Income: is a calculation of how much debt that you have going out each month in relation to how much gross income coming in each month. This means if you have 1000 dollars in bills going out each month and 2000 thousand dollars coming in you have a 50% debt to income ratio. The ideal debt to income ratio is below 40% for most banks that finance credit scores below 600. If your score is over 600 then you might be able to get away with a 50% percent debt to income ratio.Payment to Income: is the amount of payment that you will qualify for based on your income. The ideal payment to income is 15% of your income. If your score is below 600 most sub prime auto loan lenders will not approve you for a loan if you are applying for an auto loan with a payment in excess of 15%. On occasion there are banks that will approve you for auto loans with a 20% payment to income. The question that you need to ask yourself is whether or not you think to can tolerate that high of a payment. In most cases you will feel stretched on payment if you apply for an auto loan with a payment to income higher than 15% and it is not recommended.Loan to Value: Loan to Value or LTV means the amount of loan that you are applying for in relation to the wholesale or invoice value of the vehicle that you are applying for. The way you figure this out is you need to do some research on the vehicle before you hit the dealerships lot. You can check a few sources online like kbb.com for used vehicle values or Edmunds.com for new vehicle invoices. Once you know what value of the vehicle is then can determine a few things, how much money down you will need or how much negotiating you will have to do. Most auto lenders that deal with bad credit will not want to lend on an auto loan with a LTV higher then 140%. If your score is less that 600 you LTV really needs to be less than 125% that means some good down payment or really good deal on the car that you buying.Down Payment: There is no magic name for this one you have got to pay to play. In most case with a score less than 600 you are going to need at least 10% percent down payment with a minimum down of 1000 dollars. The more money that you put down the better chance of getting approved you will have.This is just the tip of the ice berg when it comes to getting approved for an auto loan when you have bad credit. We still need to cover:o Job time/Job Stabilityo Number of Recent Inquireso Type of Bankruptcyo Time since Bankruptcyo Time since Auto loan repossessiono Time on Credit bureau
The Anatomy of a Bad Credit Auto Loan Part 1
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