Auto Loans

A Millennial’s Guide to Getting Your First Car Loan

auto-loan-down-payment

Buying a car is almost a rite of passage. Making that first car purchase, negotiating with the seller, and arranging financing (if you need an auto loan) all require a certain amount of savvy.

And, once you successfully achieve the car-buying milestone, another signpost looms in the distance: Refinancing.

Whether you’re getting an auto loan for the first time, or you want to refinance your existing car debt, it’s important to be an informed consumer. Here’s what you need to know.

Get your finances in order

Before beginning your car search, you need your finances in order, according to Joe Pendergast, the vice president of consumer lending for Navy Federal Credit Union.

“Know your budget, check your credit score, and review your existing credit accounts to ensure they are reported accurately,” Pendergast said. Your credit situation can directly impact the interest you pay on your auto loan.

Emily Shutt, a certified financial coach who works closely with millennial women to help them manage a variety of money issues, suggested calling around to different dealers and banks or credit unions to see what credit bureau they use to check your score. Then you can check your report for errors and have them fixed before you talk to someone about financing your car purchase.

“Having errors on a credit report can negatively impact score, which can put you at a huge disadvantage when you’re negotiating for an auto loan interest rate,” Shutt said.

You should also know ahead of time where you stand with your budget. Use an online loan calculator to determine what you can afford in terms of a monthly payment. For example, if you think you can handle a $305 monthly payment, and you have the credit to get an interest rate of 2.9% for a five-year loan, you might feel you can afford to borrow up to $17,000 for a car.

Save up for a down payment

Just because you might be able to borrow so much for a car doesn’t mean you necessarily should. In fact, saving for a down payment makes a lot of sense, Shutt said. Not only does having a down payment help you to better negotiate your loan rate, but it also can allow you a shorter loan term and save you money in the long run.

Play around with the numbers a little with an online calculator. If you can put $7,000 down, so that you borrow only $10,000 of that $17,000 car, you could maybe get an interest rate of 2.5% and a loan term of three years. Even better, your monthly payment would only be $289 — and you’d save $1,494 in interest.

The less you borrow, the more money you have in the end. And that’s money you can put toward investing in your future, rather than paying interest to someone else.

Know what you want — and what it costs

Once your finances are in order and maybe you have a down payment saved up, it’s time to figure out what you can actually buy. Avoid over-borrowing by knowing what you want in a car and having an idea of what it costs, Shutt suggested.

“Everything should already be online so you can get a sense of what all the options are,” said Shutt. A little research can go a long way toward helping you get a sense for which cars will fit into your budget.

Shutt pointed out that the job of salespeople is to get you to spend as much money as possible. The more you spend, the more you have to borrow — and the more you’ll pay in interest. “Confidently stand your ground when a salesperson tries to upsell you or steer you in another direction,” she said.

Pendergast agreed on the need to research your car choices ahead of time. “Know the price other dealerships in the area are offering so you can make an informed purchase,” he said.

It’s even okay to play one seller’s price off another’s to get the best deal. Don’t be afraid to let the other dealerships know you’re shopping around. They’ll be more inclined to negotiate with you, potentially resulting in a better deal.

Get an auto loan quote from a bank or credit union

Before you ask for dealer financing, suggested Pendergast, talk to a bank or credit union.

“You should see what type of loans your financial institution has to offer,” said Pendergast. “This will give you guidance for your budget, but will also increase your purchasing power to help you in negotiations, regardless of the dealer’s proposition being on par with the lender’s.”

Donald E. Peterson, a consumer lawyer with almost 30 years of experience, warned that dealer financing still often requires the involvement of a bank or credit union. Dealers submit your information to lenders and get interest rates quotes back.

“Sometimes dealers mark up the interest rate above the rate banks would buy the loan at,” Peterson said. “The bank and the car dealer split the excess interest, usually 50-50.”

This practice isn’t just limited to banks, either. “Some credit unions have entered into interest-rate kickback agreements with car dealerships,” Peterson said. “You must apply to the credit union yourself to get the best rate.”

Starting with a financial institution allows you to get an idea of what’s available to you. Then, you’re in a position where a dealer who wants to finance you has to match the rate you’ve already been offered, rather than steer you toward an alternative arrangement.

Consider a cosigner

With my own first auto loan experience, I had to deal with the fact that I had a thin credit file. I didn’t have enough credit established to get a car loan without an unacceptably high interest rate.

I went through the steps of creating a budget and deciding how much I could afford, including factoring in my car insurance costs. However, after checking my credit report, I realized that having a credit card for six months wasn’t enough for me to establish much of a credit history.

After compiling research about the types of used cars I could afford, and how my earnings from my job were enough to cover an auto loan payment, I approached my parents. My dad was willing to cosign on a modest car loan through his credit union.

My interest rate — and my monthly payment — were lower because I had cosigner with good credit. I made all my payments on time, helping build my credit history so that the next time I bought a car, I was able to get a good interest rate without the need for a cosigner.

As you research your options, don’t forget about the possibility of using a cosigner. If you don’t have the credit history to get a good auto loan rate on your own, borrowing someone else’s good name can help you save money — while at the same time allowing you a way to establish your own credit for the future.

Don’t fall for the monthly payment scheme

While you do want to figure out what monthly payment you’re comfortable with, you don’t want to get caught up in it at the dealership, cautioned Shutt.

“Focus on the all-in price of the car,” said Shutt. “If the salesperson can get you to verbalize a monthly payment target, they’ll just manipulate other factors like the duration of the loan.”

When that happens, Shutt pointed out, you might end up hitting your targeted monthly payment, but long-term interest charges and other factors could mean that your car ends up being a lot more expensive. She said you should figure out about how much you’ll pay each month over a loan term you’re comfortable with, and then buy a car with a final price that fits those parameters.

“Take your time, and don’t be manipulated,” Shutt said. “If you’re not comfortable negotiating, bring a friend or family member who can support you in sticking to your budget.”

What about refinancing?

In some cases, you might discover that you qualify for a lower auto loan interest rate than you currently pay.

“Maybe you’ve been making timely payments for a year or two and your credit score has gone up,” said Shutt. “Now you can consider refinancing the loan.”

However, it’s important to be careful moving forward. Just as you shop around for the best auto loan rates on a new loan, it makes sense to shop for refinancing rates. Check with a few banks and credit unions to see if you can get a few quotes for refinancing.

When you refinance, watch out for lengthening the loan term. If you only have three years on your term, it might not make sense to refinance to a five year loan. Instead, only refinance what you have left. You could save on interest charges and still get rid of your car debt in the original time frame.

Shutt also recommended looking online for car loans. Compare the rates you find with online auto loan refinancing platforms to what your local financial institutions offer. By playing different lenders off each other, you could strike a better bargain — especially if you have good credit.

Know your finances and be ready to negotiate

Auto loans are a massive industry, with more than $1 trillion owed to U.S. lenders. Rather than being just another statistic, consider how you can come out on top.

Know your finances and understand what you can expect, Pendergast said. When you know where you stand, and when you research ahead of time, you can call dealers and lenders out. Shop around for the best auto loan rates and terms, and let dealers know you’ve done your homework, so that negotiations will go much better, saving you time and, importantly, money.

 

If you want to be sure your credit is good enough to purchase a car, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated every 14 days.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

Image: iStock

The post A Millennial’s Guide to Getting Your First Car Loan appeared first on Credit.com.

Source: credit.com

Auto Loans

5 Steps for Getting a Car Loan

This Article was Updated July 5, 2018

When you are looking to buy a vehicle, the first thing you should do is apply for a preapproved loan. The loan process can seem daunting, but it’s easier than you think and getting preapproval prior to going to the car dealer may help alleviate a lot of frustration along the way.

Here are five steps for getting a car loan.

  1. Check Your Credit
  2. Know Your Budget
  3. Determine How Much You Can Afford
  4. Get Preapproved
  5. Go Shopping

1. Check Your Credit

Before you shop for a loan, check your credit report. The better your credit, the cheaper it is to borrow money and secure auto financing. With a higher credit score and a better credit history, you may be entitled to lower loan interest rates, and you may also qualify for lower auto insurance premiums.

Review your credit report to look for unusual activity. Dispute errors such as incorrect balances or late payments on your credit report. If you have a lower credit score and would like to give it a bit of a boost before car shopping, pay off credit card balances or smaller loans.

If your credit score is low, don’t fret. A lower score won’t prevent you from getting a loan. But depending on your score, you may end up paying a higher interest rate. If you have a low credit score and want to shoot for lower interest rates, take some time to improve your credit score before you apply for loans or attempt to secure any other auto financing.

2. Know Your Budget

Having a budget and knowing how much of a car payment you can afford is essential. You want to be sure your car payment fits in line with your other financial goals. Yes, you may be able to cover $400 a month, but that amount may take away from your monthly savings goal.

If you don’t already have a budget, start with your monthly income after taxes and subtract your usual monthly expenses and how much you plan to put in savings each month. For bills that don’t come every month, such as Amazon Prime or Xbox Live, take the yearly charge and divide it by 12. Then add the result to your monthly budget. If you’re worried, you spend too much each month, find simple ways to whittle your budget down.

You’ll also want to plan ahead for new car costs, such as vehicle registration and auto insurance, and regular car maintenance, such as oil changes and basic repairs. By knowing your budget and what to expect, you can easily see how much room you have for a car payment.

3. Determine How Much You Can Afford

Once you understand where you are financially, you can decide on a reasonable monthly car payment. For many, a good rule of thumb is to not spend more than 10% of your take-home income on a vehicle. In other words, if you make $60,000 after taxes a year, you shouldn’t spend more than $500 per month on car payments. But depending on your budget, you may be better off with a lower payment.

With a payment in mind, you can use an auto loan calculator to figure out the largest loan you can afford. Simply enter in the monthly payment you’d like, the interest rate, and the loan period. And remember that making a larger down payment can reduce your monthly payment. You can also use an auto loan calculator to break down a total loan amount into monthly payments.

You’ll also want to think about how long you’d like to pay off your loan. Car loan terms are normally three, four, five, or six years long. With a longer loan period, you’ll have lower monthly payments. But beware—a lengthy car loan term can have a negative effect on your finances. First, you’ll spend more on the total price of the vehicle by paying more interest. Second, you may be upside down on the loan for a larger chunk of time, meaning you owe more than the car is actually worth.

4. Get Preapproved

Before you ever set foot on a car lot, you’ll want to be preapproved for a car loan. Research potential loans and then compare the terms, lengths of time, and interest rates to find the best deal. A great place to shop for a car loan is at your local bank or credit union. But don’t stop there—look online too. The loan with the best terms, interest rate, and loan amount will be the one you want to get preapproved for. Just know that preapproved loans only last for a certain amount of time, so it’s best to get preapproved when you’re nearly ready to shop for a car.

However, when you apply, the lender will run a credit check—which will lower your credit score slightly—so you’ll want to keep all your loan applications within a 14-day period. That way, the many credit checks will only show as one inquiry instead of multiple ones.

When you’re preapproved, the lender decides if you’re eligible and how much you’re eligible for. They’ll also tell you what interest rate you qualify for, so you’ll know what you have to work with before you even walk into a dealership. But keep in mind that preapproved loans aren’t the same as final auto loans. Depending on the car you buy, your final loan could be less than what you were preapproved for.

In most cases, if you secure a pre-approved loan, you shouldn’t have any problems getting a final loan. But being preapproved doesn’t mean you’ll automatically receive a loan when the time comes. Factors such as the info you provided or whether or not the lender agrees on the value of the car can affect the final loan approval. It’s never a deal until it’s a done deal.

If you can’t get preapproved, don’t abandon all hope. You could also try making a larger down payment to reduce the amount you are borrowing, or you could ask someone to cosign on the loan. If you ask someone to cosign, take it seriously. By doing so, you are asking them to put their credit on the line for you and repay the loan if you can’t.

When co-signing a car loan, they do not acquire any rights to the vehicle. They are simply stating that they have agreed to become obligated to repay the total amount of the loan if you were to default or found that you were unable to pay.

Co-signing a car loan is more like an additional form of insurance (or reassurance) for the lender that the debt will be paid no matter what.

Usually, a person with bad credit or less-than-perfect credit may require the assistance of a co-signer for their auto financing and loan.

5. Go Shopping

Now you’re ready to look for a new ride. Put in a little time for research and find cars that are known to be reliable and fit into your budget. You’ll also want to consider size, color, gas mileage, and extra features. Use resources like Consumer Reports to read reviews and get an idea of which cars may be best for you.

Once you have narrowed down the car you are interested in, investigate how much it’s worth, so you aren’t accidentally duped. Sites such as Kelley Blue Book or Edmunds can help you figure out the going rate for your ideal car. After you’re armed with this information, compare prices at different car dealerships in your area. And don’t forget to check dealer incentives and rebates to get the best possible price.

By following these steps, you’ll be ready to make the best financial decision when getting a car loan. Even if you aren’t ready to buy a car right now, it doesn’t hurt to be prepared. Start by acquiring a free copy of your credit summary.

It is always a good idea to pull your credit reports each year, so you can make sure they are as accurate as they should be. If you find any mistakes, be sure to dispute them with the proper credit bureau. Remember, each credit report may differ, so it is best to acquire all three.
If you want to know what your credit is before purchasing a car, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get a free credit score updated every 14 days.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

Image: istock

The post 5 Steps for Getting a Car Loan appeared first on Credit.com.

Source: credit.com

Auto Loans

Did You Know that Amazon Has a Secret Luxury Site?

Amazon’s best-kept secret is out. VRSNL, (short for “versional”), has been quietly selling luxury fashion items since September 2019. A total of 30 designers are currently on the VRSNL roster, including Alexander McQueen, Balmain, Prada and Jimmy Choo. What distinguishes VRSNL is a section called “The Remix,” which features original editorial content that tells stories behind the brands and designers. The retailer also has an app, which allows today’s trendsetters to shop wherever, whenever.

The post Did You Know that Amazon Has a Secret Luxury Site? first appeared on Century 21®.

Source: century21.com

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Newly Renovated, 1915-Built Townhouse in Park Slope Asks $4.4 Million

A four-bedroom townhouse with park views and tons of charm has recently hit the market, and we’re dying to tell you all about it. The listing, brought to market by Compass’ Michael J. Franco, is right next to Prospect Park, Brooklyn’s second largest park, and has plenty of outdoor space (and a rooftop deck to boot).

The townhouse sits in one of Brooklyn’s trendiest, most desirable neighborhoods — Park Slope — with its leafy streets lined with brick and brownstone townhouses, many of which were built near the turn of the 20th century and have been lovingly updated over the decades by young families migrating from Manhattan. Much like its neighboring properties, the 2,600-square-foot townhome at 15 Prospect Park was originally built more than a century ago in 1915 and retains its old-world charm — but has been carefully updated to meet modern standards of living.

beautiful townhouse in prospect park, Brooklyn
Park Slope townhouse on the market for $4.4 million. Image credit: Compass//Michael J. Franco

With 4 bedrooms, 3.5 baths, a generously sized living room, and a finished basement, the Brooklyn townhouse also comes with a few rare features for a New York home: ample outdoor space and private parking (that includes a private garage and its own driveway).

The layout is split on three levels, with the first floor housing a large living room and open dining room — both with distinctive pre-war features like classic moldings and arches — and a renovated kitchen that opens up to a lovely terrace.

inside a beautiful pre-war townhouse in Park Slope, Brooklyn
Beautiful living space with distinctive pre-war features like arches and moldings. Image credit: Compass//Michael J. Franco
dining room of a pre-war townhouse in park slope, Brooklyn
Beautiful living space with distinctive pre-war features like arches and moldings. Image credit: Compass//Michael J. Franco
renovated kitchen in Brooklyn townhouse
The renovated kitchen. Image credit: Compass//Michael J. Franco
lovely terrace of a pre-war townhouse in Park Slope, Brooklyn
The Park Slope townhouse has a lovely terrace. Image credit: Compass//Michael J. Franco

The second floor is home to 3 bedrooms and a sizeable landing which is perfect for either a library or a home office, while the third floor is dedicated to the primary bedroom suite and its massive walk-in closet, renovated bath with skylights and soaring ceilings, with a separate sitting area/den. The third level also provides access to the townhouse’s own rooftop deck, which adds more outdoor space and looks like a perfect place to entertain guests.

bedroom of a charming brooklyn townhouse in park slope
Bedroom opens up to Prospect Park views. Image credit: Compass//Michael J. Franco
bathroom with skylight in brooklyn townhouse
 Renovated bath with skylights and soaring ceilings. Image credit: Compass//Michael J. Franco
roof deck of a brooklyn townhouse in park slope
Rooftop deck of the $4.4 million townhouse in Park Slope, Brooklyn. Image credit: Compass//Michael J. Franco

The property is listed for $4,400,000 with Compass associate real estate broker Michael J. Franco.

More beautiful New York City homes

This Brooklyn Condo Has a Dreamy Backyard that Will Make You Forget You’re in the City
Trophy Apartment Once Owned by Composer Leonard Bernstein Asks $29.5 Million
These 5 Unique Listings Will Remind You of Everything that Makes NYC Real Estate Special
This $16M NYC Penthouse Has Unobstructed Views of Central Park and the Manhattan Skyline

The post Newly Renovated, 1915-Built Townhouse in Park Slope Asks $4.4 Million appeared first on Fancy Pants Homes.

Source: fancypantshomes.com

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Trophy Apartment Once Owned by Composer Leonard Bernstein Asks $29.5 Million

An Upper East Side apartment that was once home to one of the most significant American cultural personalities of the 20th century has recently hit the market.

The Art Deco masterpiece at 895 Park Avenue was previously owned by famed composer and cultural icon Leonard Bernstein, whom music critics refer to as “one of the most prodigiously talented and successful musicians in American history”. In fact, this very property is where Bernstein — also a lifelong humanitarian, civil rights advocate, and peace activist — hosted an infamous “radical chic” party with and in support of the Black Panther Party back in 1970.

But its famous past owner is not the building’s only historical trait; built in 1929, it is designed in the classic Art Deco style, evoking New York City’s golden age glamour and sophistication. That, paired with its carefully preserved original architectural details (original wood-burning fireplaces and wide-plank wood floors) and panoramic Manhattan views make this residence a true gem.

perfect manhattan views from luxury apartment
Image credit: Warburg Realty

Clocking in at approximately 6,300 square feet, with an extra 700 square feet of private outdoor space, the 895 Park Avenue unit spans over two floors of the 21-story Upper East Side building. The entrance is through a private elevator landing which opens into a 34-foot grand gallery, further leading into the residence’s elegant formal living room, library, and dining room.

With 6 bedrooms and 6.5 bathrooms, the trophy apartment also comes with an enclosed solarium that’s bathed in sunlight and that, just like the rest of the rooms and outdoor spaces, opens up to picture-perfect views of the city.

beautiful solarium in Manhattan apartment
Image credit: Warburg Realty
Image credit: Warburg Realty
Image credit: Warburg Realty

A grand staircase leads to the lower level, which houses the 6 bedrooms, as well as a home office and laundry room. All but one of the bedrooms enjoys their own en-suite bathroom as well as significant storage space in the form of walk-in closets or dressing rooms.

Image credit: Warburg Realty

The building itself adds an extra note of sophistication and convenience; the full-service white glove co-op has a long list of amenities, including multiple doormen, an elevator attendant, health club, squash court, basketball court, and private storage units. Though location itself may be its biggest asset: 895 Park Avenue is located right in the heart of the Upper East Side, on the southeast corner of 79th street and Park Avenue, providing direct access to world-class dining and shopping.

Priced at $29.5 million, the elegant unit is listed with Bonnie Chajet, Allison Chiaramonte, and Tania Isacoff Friedland of Warburg Realty.

More luxury apartments

This $16M NYC Penthouse Has Unobstructed Views of Central Park and the Manhattan Skyline
Power Couple Loren & JR Ridinger Selling Palatial Unit in Jean Nouvel-Designed Building
These 5 Unique Listings Will Remind You of Everything that Makes NYC Real Estate Special
Former Home and Office of Marilyn Monroe’s Psychiatrist Listed for Sale in Manhattan

The post Trophy Apartment Once Owned by Composer Leonard Bernstein Asks $29.5 Million appeared first on Fancy Pants Homes.

Source: fancypantshomes.com

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Design Trends that Add Extra Flair to Your Fancy Home

After Celebrity Snoop Dogs launched on Channel 4 on June 26, our collective obsession with celebrity homes became even bigger. Thanks to a GoPro camera strapped to a celeb’s beloved pooch, viewers are afforded a glimpse inside an A-Lister’s house.

While some celebrity homes may be described in some circles as ‘understated’, others are unashamedly extravagant. The world has always been strangely fascinated with celeb homes, with countless regular Joes making a huge effort to replicate certain aspects of a celebrity home when designing their own abode.

Whether you are a world-famous celeb or just someone who appreciates an exquisite home, here are a few of the hottest home design trends to follow before the year comes to an end.

Decorative elements are more dramatic than ever before

If you want your home to have the same theatrical appeal as your typical celebrity crib, consider investing in a range of dramatic decorative elements that will breathe new life into your home.

Tapestries that depict tranquil landscapes, colorful oriental designs or mythological artwork are considered hot property right now. Additionally, old, ultra-modern accessories including black-lined frames and mirrors, modern prints, oversized sculptures and vases, and contemporary cushion covers, carpets and rugs can all add a touch of drama to a room.

You can even opt for a dramatic kitchen or bathroom by steering clear of traditional white tiles and finishes and opting for dark colors and copper or gold fittings.

double vanity bathroom

Bonus rooms add significant value to a house

Celebs are known to have a love for the extravagant, which is why you will find  everyone from J-Lo to P. Diddy owning homes that feature bonus rooms such as gyms, sunrooms, cinemas and wet bars. Industry specialists ranging from Hollywood interior designers to home builders in Delaware are creating exquisite, award-winning homes that effortlessly incorporate innovative spaces such as sunrooms and home cinemas into a home design.

Depending on the amount of space you have available, you can add a number of lush spaces to your home design. Home offices are always popular, as are dedicated homework rooms for children. Smoking rooms, man caves, game rooms, home theaters fitted with all the latest hi-tech gear are also becoming increasingly popular among new homeowners, as are she-sheds.

chartwell-drive-chartwell-west-vancouver-home-theater

Mixed metals make a lasting impression

Mixing metals is once again trending this year, with celebs and ordinary people alike opting to mix warm and cool metals to obtain an intriguing, luxurious look.

While metal finishings have been popular for quite some time, furniture in gold, silver, copper, tin and aluminum are all gaining popularity fast. Although metal is very fashionable, there are a few guidelines that need to be adhered to when it comes to decorating your posh abode. When mixing warm metals such as gold and brass with the cool colors of silver and stainless steel, it is important to choose a primary metal and an accent one. You can, alternatively, also opt for neutral metals, such as cast iron, that effortlessly combine with any other metals.  

This year’s design trends will make it possible to spruce up a house with ease. Even if you do not own a mansion in Beverly Hills or Presidio Heights you can still make sure your house is super-stylish and comfortable to live in (and nab some nice compliments from anyone that comes and visits).

Keep reading

How to Add a Touch of Luxury to Your Home without a Costly Renovation
Here’s Everything You Need to Set Up a Meditation Corner in Your House
These Luxury Bar Stools will Take Your Kitchen to the Next Level
Hearing Colors? Here’s What Colors to Choose in Your Home Based on Your Taste in Music

The post Design Trends that Add Extra Flair to Your Fancy Home appeared first on Fancy Pants Homes.

Source: fancypantshomes.com

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I Was Denied an Auto Loan. Now What?

Bright sunshine shines in the windshield of a car as a person with a backwards baseball cap drives with one hand on the steering wheel.

You’re in the market for a new car but you’ve been denied an auto loan. Now what? Here’s what you need to know about why you may have been denied and what to do to make sure it doesn’t happen again.

Why Do I Keep Getting Denied for Auto Loans?

Unfortunately, there are many reasons a bank might reject your application for a car loan. If your loan application has recently been denied or you keep getting denied, it might be due to one of these common reasons:

  • Application errors. Sometimes, the application could be rejected because of an error you made when filling it out. A missed section, some incorrect information, a missing form or another mistake can mean your loan is ultimately denied.
  • Bad credit. Bad credit is a common reason for auto loan denial. A score below 670 is usually considered a bad credit score, and this damages lenders’ trust in your ability to pay off a loan.
  • Too much debt. A high debt-to-income ratio can make lenders leery. If you have a number of loans or credit cards with large amounts of debt, this raises your DTI and may lower your chance of getting approved for future loans, car loans included.
  • No credit. Lenders look for proof of consistency in paying off past loans when reviewing your application. If you have no credit history, lenders may feel they don’t have enough information about your ability to pay off a future loan.

What Can I Do If My Loan Application Is Denied?

You have a few options when you’ve been denied an auto loan, depending on the reason you were rejected.

Application Error

If you were rejected because of an application error on your part, you should contact the bank as soon as you can. Hopefully, the mix-up can be resolved and your request will be approved. If not, the lender will tell you when you can reapply.

Poor Credit

If you were rejected because of poor credit, check your credit report so you can determine what is negatively impacting your score. Depending on what your report says, look into ways to improve your credit so you can be approved next time. Pay your bills on time, and use your credit cards to make and then repay smaller purchases. Keep in mind that building or rebuilding your credit can take a while. Don’t be disappointed if it takes months or even a year or two to really get your score where you want it.

If you need a loan sooner, consider adding a cosigner to your application that can be your backup if you fail to pay the loan. Lenders feel more comfortable with this method, and it’s a good way to prove dependability.

Debt

If you were rejected because you already have too much debt, it’s important to reduce that amount in steady increments. Set a budget and stick to it, tackling the largest debts first. Avoid adding any debt to what you already have. Examine your credit card usage for any unnecessary expenses and cut back on those in the future.

No Credit

If you don’t have a credit history, now’s the time to start. There are a lot of ways to start building your credit: you might be able to become an authorized user on someone else’s credit card or find a co-signer for your loan, for example. You also might want to apply for a secured credit card or credit card for no credit.

Find the right credit card for your needs. Learn more.

Does Getting Denied a Loan Hurt My Credit?

Getting denied for an auto loan doesn’t in itself hurt your credit score. The lender didn’t extend anything, so there’s nothing that can hurt your score. However, multiple denied applications at once could hurt your score.

A bank conducts a “hard inquiry” when you apply for a loan. This can cause a drop in your credit score slightly—about five to ten points—whether you’re accepted or not. If you apply for too many loans, numerous hard inquiries on your credit can cause a larger drop.

What Are My Other Options?

If you don’t have time to build or rebuild your credit, can’t get a co-signer, and need a car fast, there are two options to be considered as a last resort.

“Buy Here Pay Here” Dealers

Stop by your neighborhood “Buy Here Pay Here” (BHPH) auto dealer, and one way or another, it will probably get you into a car. It won’t be a new car, and it will probably have lots of miles on it, but at least you’ll get a car you desperately need to get you to and fro.

The BHPH dealer won’t want to talk to you about interest rates. Your local BHPH will focus on your expected monthly payment and ask for a really big down payment. They mostly care about whether or not you have a current, steady income. Based on that, they’ll determine how much they are willing to lend and which car options are available to you. It’s not a great way to buy a car, but for millions of Americans, it is the only way they can make this significant a purchase.

Unfortunately, purchasing a car at a BHPH dealer isn’t a credit boost at all. They usually don’t report anything positive to credit reporting agencies, but they will report negative actions like a missed payment or repossession. Always ask about their late payment policies before making a decision.

Alternative Credit Bureaus

If your credit score is low or your credit history is light based on traditional credit trade lines (credit cards and loans), but you have a solid history of paying your everyday bills, you may be able to take advantage of alternative credit scoring methods. If you can prove your creditworthiness by having your everyday bills verified, some companies will work with alternative credit scoring methods to offer credit. Alternative credit generally doesn’t carry the same weight as traditional credit lines, so interest rates likely will not be as competitive.

At this point, you can go to any dealer and buy the car you really want instead of being limited to the inventory on a BHPH lot. If you can afford the payments, you can buy a new car that’s under warranty and has no mileage on the odometer. If you can continue to work on your credit and improve your credit score, refinancing may even be available down the road.

However, many lenders still do not use alternative credit and don’t view it as proof of reliability. Most of these alternative credit companies also don’t report your findings to the major credit bureaus. So, while these alternative creditors may be a short-term option, building credit through traditional methods should be a priority.

Why Would I Get Rejected for a Car Refinance?

If you were denied for refinancing, it’s probably because of a poor credit score or a high DTI. Usually, these are the same as the reasons you might be denied an auto loan. Your score may have been satisfactory when you purchased the vehicle but taken a few hits since its purchase.

How to Get Approved Next Time

Before you reapply for an auto loan, make sure all your information is in order. Gather your records and make sure everything is ironed out and correct before you go to a lender. For a better shot at loan approval, your credit score should be in a comfortable range, and you shouldn’t have any large outstanding debts. Always check your credit score before you apply. If it’s not high enough for loan approval, work to improve your credit first. Then, make sure you’ve determined what type of payments and interest you can afford.

If you do get denied, don’t worry! By making sure you meet all of the income, credit and debt requirements for an auto loan, you can increase your chance of getting accepted the next time you apply.

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Source: credit.com