Car Loan Underwriting

[Anonymous]

I know there's a lot of weight in Fico scores when it comes to borrowing anything, but frankly that is just a tiny piece of the puzzle. 

We seem fixated on that number, but for many people (including myself), simply getting approved falls far outside of just having such-and-such score. 

Does anyone know general underwriting guidelines for car loans?

For example, I would imagine online applications and automated responses don't give aYES/NO based on score alone. 

What are some of the general guidelines underwriters (human or machine) look for?

I'm just guessing here:

1. Score

2. Payment to income ratio (but what constitutes good or bad).

3. Overall DTI with and without loan (again what do underwriters look for).

4. Credit utilization (what is good and what is bad from an underwriter's perspective).

5. ???

6. Most importantly: Does a red flag in any ONE of the above automatically constitute a denial?

7. Does anyone know how those automated responses work for online applications?  I know creditors have different algorithms, but what generally goes into them for the computer to know, one way or another?  It has to include more than your score I would imagine. 

[Anonymous]

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@franatic wrote:

I know there's a lot of weight in Fico scores when it comes to borrowing anything, but frankly that is just a tiny piece of the puzzle. 

We seem fixated on that number, but for many people (including myself), simply getting approved falls far outside of just having such-and-such score. 

Does anyone know general underwriting guidelines for car loans?

For example, I would imagine online applications and automated responses don't give aYES/NO based on score alone. 

What are some of the general guidelines underwriters (human or machine) look for?

I'm just guessing here:

1. Score

2. Payment to income ratio (but what constitutes good or bad).

3. Overall DTI with and without loan (again what do underwriters look for).

4. Credit utilization (what is good and what is bad from an underwriter's perspective).

5. ???

6. Most importantly: Does a red flag in any ONE of the above automatically constitute a denial?

7. Does anyone know how those automated responses work for online applications?  I know creditors have different algorithms, but what generally goes into them for the computer to know, one way or another?  It has to include more than your score I would imagine. 

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Okay so I just leased two new Infinitis (One in September and one last month) and had a long conversation with the Finance Guy at the dealership. This is just some general information I got from him:

- Anything above a 720 score gets you the best interest rates right now. In addition, due to the current credit environment, many lenders have extended their best terms to clients down to a 700 score

- Generally they want your DTI to be under 36% inclusive of the Auto Payment. The big focus on this is your mortgage/rent payment + Auto Note compared to your income

- Much easier approval if you've satisfied a previous Auto Loan, especially with the same finance group (I had one satisfied note with Infiniti Finance prior)

- The Online Pre-Approval is kind of a waste depending on your situation. If you want to secure your own financing (With your CU for example) it is a different story, but many times the dealerships have relationships with lenders and can get you approved if your application is marginal/borderline

- The only red flags he mentioned were the standard things (Late Payments, Repossessions, etc.) and also he mentioned that some lenders keep an internal tracking system of your payments. So for example, lets say you had an Infiniti Lease payment and were always 10 days late on your payment. It wouldn't show up on your credit report, however, they are less likely to approve you for another lease after your current term is up because of their internal tracking system.

If you want some Data Points, I was 27 at time of purchase (28 now), Income is $156K, Mortgage Payment $1300, $6500 floating on cards (~3% util), Total Payment for both cars is $1150, Scores in Sig, and I have a large student loan I'm currently repaying ($85K). I hope this information helps somewhat.

[Anonymous]

there is a lot more to it than underwriting guidelines....but one main thing banks consider is Value of the vehicle and estimated value at the end of the loan ,  most banks if you have a around 680 or higher they  will finance 110% of the NADA value of the car. under  a 680 score and they only finance around 80% +/-  (thats when dealer requires down payment for approval) of the Nada value of the vehicle.  what happends is basicly in the same fashion as a mortgage broker.  the dealer sells you the car....... the bank purchases the portfolio from the dealer for a pre dertermined amount after closing  (the approval $ and a min interest rate). now the dealer has the option to BUMP THE INTEREST RATE 1-2% HIGHER THAN THE APPROVAL and many times they do, THS GIVING THE DEALER A HiGHER RETURN.     

NOW.... SUBPRIME WORKS THE SAME WAY  HOWEVER.

THE the deler will sell you the car and the dealer will only see a portion of the selling price of the car right away..... the rest is held in what they call DEALER HOLDBACK that either gets dispursed over time that you make your payments or a lump sum at the maturity of the loan.   this is why there is a much greater  difference between a cash price and finance price in poor credit situations. 

[Anonymous]

What you said about dealer holdback is not true.  the dealer gets paid on the car IN FULL even if you default on your loan 3 months into the loan.  They are cut a check from the bank within weeks of the sale.  It is NOT the dealers responsibility for you to pay your loan.  The dealer is not financially responsible for the car as soon as you sign the papers and the papers are approved by the bank.  At time of approval and delivery of the car, the bank takes responsibility.    Dealer holdback is the money between the invoice price and actual dealer cost.  Dealer holdback is money set aside for the dealers principle (owner).  Money between invoice and up is for the dealership and its sales force.  This is why the salesperson and sales manager only get paid on the monies between the actual selling price of the car and invoice.  I was in the car business for 5 years being a salesperson and half my family are general sales managers, sales managers, and F&I managers

[Anonymous]

For subprime and deep subprime lenders like Santander they require dealers to kick in money (up to 5k in some cases but often times far less). Dealers do this because they want to move inventory, they get holdback from the factories and of course the customer is paying regardless.  I was in a tough spot after years of neglect last summer and had to go the Santander route to get a car in a pinch and learned a great deal about the subprime market, even though I had a prequailfy from Santander some Honda dealers didnt want anything to do with me because of the money they would have to kick into the deal to make it happen.  I was able to move out of that crappy loan in less than 6 months by establishing some trade lines, getting some collections cleared up and going with a credit union. My DTI ratio was great but the FICO scores and collections put me in subprime territory. 

[Anonymous]

here is an example of DEALER HOLDBACK with credit acceptance, I know for a fact that Nuevell Financial and satander use similar programs.

Portfolio Program

Under the Portfolio Program as payment for the vehicle, the dealer-partner generally receives a down payment from the consumer, a non-recourse cash payment (“advance”) from CACC, and after the advance has been recovered by CACC, the cash from payments made on the consumer loan, net of collection costs and CACC’s servicing fee (“dealer holdback”), which generally equals 20% of collections.

[Anonymous]

Yeah, I ended up leasing a Lexus.  It came down to the Audi A7 and Lexus LS 460 and I ended up getting something I can drive without having to worry much.

I talked to the Lexus finance guy while he was writing up my contract and he said that Toyota does indeed have underwriting GUIDELINES and there is some subjectivity involved and layers of approval if certain criteria isn't met.

He said the two biggest factors in determining approval is credit score and the ability to pay.  While he didn't get into specifics he said they look at your credit history (obviously) AND, most importantly (as he said), your ability to pay, which boils down to income versus payment and overall DTI. 

He said they don't like seeing a car payment that exceeds 15% of your gross income (although he mentioned they do go up to 25%) and they get nervous if your overall monthly debt obligations with car payment exceeds 35%, although that isn't set in stone and there is some discretion that the underwriter has.  However, if it exceeds those values, it needs additional approval/reasoning.  He mentioned that if you have a big income, that DTI ratio is more flexible versus a lower income as there is typically more leeway in regards to overall money flow.

He also mentioned that the underwriter will get nervous (those are his words) if you don't have a good job history, or move around a lot.  If you can demonstrate that you have been in a job for five+ years, those are all "green flags."  But again, there are many factors he mentioned.

So, the two biggest factors in getting approved for finance according to the Lexus Finance guy are:

1. Credit history

2. Ability to pay (or DTI)

What tier you belong to (i.e., rate) is based entirely on your credit history.  Whether you get approved or not depends heavily on your ability to pay (i.e., income versus expenses, etc.). 

During negotiation, they'll come out with a sheet where you can negotiate, but before they do, they'll run your credit and on top of that sheet is a letter.  Mine showed A, which I presume was for tier 1 or tier A (I didn't ask).

Another interesting tidbit is that Audi financial offered me a ludicrously low money factor of 0.000059 or 1.416%.  The BEST money factor/interest rate for Lexus right now is 2.88% or 0.0012.  Or so says the finance guy.  That wasn't negotiable, at least I couldn't negotiate it lower.  It was a factor in my decision, but I still ended up getting the Lexus.

Also the credit disclosure on the paperwork for Lexus (in California) showed the following: Experian Auto Loan Model V2, which was my lowest auto score of the auto scores shown on my Fico page.  Figures I guess.  It was listed at 743, where I have some other auto score models almost at 800.

Oh, another caveat I forgot to mention and the reason I came here in the first place regarding my extremely high credit utillization.  He said that doesn't really come into play unless it impacts your ability to pay.  He said that factor is built into your credit score and if you can pull off high utilization and good credit score, they don't look at that negatively.

I wanted to post a picture and while I now have that picture button, it only allows me to link a page.  I can't insert a picture from my computer.