Many people believe having good credit score is all they need to get a loan approved; bad news, it is not. Credit score although plays an important role for lenders to authorize credit, it’s not everything that they take into account. Some cases, other aspects of your solvency or financial status gain priority compared with credit score.
Even if you have preapproved loan, the company reserve the rights of endorsing your loan.
Therefore, besides having a great credit score, every lender considers other aspects of your financial status. The weight of each one of them varies with the company.
Your job is decisive: Income and Stability
Having financial stability is vital for many lenders when giving a loan. Furthermore, you can have a steady job but if your monthly or weekly payment is relatively low, it would be very difficult to get a loan for fairly amount of money.
On one hand, stable job means – in a nutshell – having a contract. In other words, it is easier to get a loan if you are backed up by a company. For freelancers or people that are constantly changing jobs, getting a car loan can turn into a nightmare.
Nevertheless, there is always the possibility to get a loan with high interest rate – which is the type of loan given for people with high risk of missing payments.
On the other hand, lenders will deny loans to people with low income, despite good credit score or steady contract. It looks quite difficult to believe that somebody that earns $2000 a month will be able to pay a $15000 loan for a car, in a short period of time. It definitely represents a lot of risk for the lender to give credit to a person with a lot of expenses and not very much income.
How much debt you have
Once you acquire financial commitments with other lenders (mortgage, credit cards, student loan, car dealerships etc.) getting one more credit becomes problematic. The reason is that earning $3000 in a month but having to pay mortgage, divorce, credit card for a total debt of $1500 turns you into a risky borrower.
This ability to give back the money you lend is called capacity. Poor capacity is typical of people willing to take financial risks, and it is symptom of borrowers close to bankruptcy.
Lenders will notice if you are diving in debts when they ask for a relation between your incomes and expenses, backed up with letter from your employee with the amount of money you earn. The amount of debt you have is part of your credit history report, which is part of the documents lenders ask for to credit bureaus.
Financial issues lately?
Besides having good capacity and credit score, lenders will see if you have been lately involved in financial troubles: bankruptcy, repossession or lack of payments. They can see these problems reflected in your credit history report.
Nevertheless, some car dealerships or banks only take into account some issues that have had place in certain period of time. For instance, some companies will consider every issue under 3 or 4 years old, some others only in the last year.
It is worth to mention that financial problems happened after 7 years will be deleted from the history report. Therefore, if you had repossession 8 years ago, it’s probable that the car dealership or bank don’t take it into account to give a loan.
Laura Pájaro is a engineer writing for Hi Lo AutoSales: passionate for cars and finances, sea lover and coffee addict.