Lenders are pretty simple people. They base their decisions on three primary criteria. They look at you history of paying your debts, your ability to repay the requested loan, and your down payment.
Favorable Debt History
Your history of paying your debts is easy to check. A lender will request your credit report and accompanying credit score from one, or all three, of the major credit reporting agencies. They may also use a specialized score, such as Beacon or Vantage. Obviously, negative actions such as late payments and collections will lower your score and diminish your chances of being approved for an auto loan. You can prepare for this by requesting your reports from the major agencies prior to applying for a loan. You can get them free once a year at www.annualcreditreport.com.
Next, a lender will look at your current income, bills (everything from rent/mortgage to utilities to other loan payments), and how the estimated payment on your requested loan will weigh on the total percentage of income being committed to debt payments. Each lender has different numbers, but if you are committing more than 40 percent of your after tax income to debt, you will most likely be denied for a new loan. Most lenders are more concerned with this ratio than your actual income. However, some have a minimum income requirement of $1500 per month before taxes.
Adequate Down Payment
Lastly, you should offer at least 20 percent of the total purchase price as a down payment to maximize your chances of being approved. A down payment like this demonstrates your commitment to the loan, and it protects both you and the lender from risks associated with negative equity (owing more on your loan than the vehicle is worth).
Do you have what lenders are looking for? If so, we encourage you to apply for financing online. Our service is free to use, and we match you to a lender based on your application criteria.