First time buyer- Will I get approved?

SeanDylan · ‎06-08-2014

As the title states, I am a first time buyer and was wondering if I'll get approved, and if so, what kind of APR would I be looking at. I'll get into all the details in a second but the car I will be purchasing is a 2014 Ford Focus ST. I'm unsure of the exact out the door price because I cannot sign a contract until the car has been delivered. I ordered the exact one I wanted, put $300 down (refundable) to ensure no one else could take it, but it takes at least 6-8 weeks for the dealership to receive the car. The majority of the incentives for Ford change in a month, which will be before my car arrives. This means I will not know the exact amount I'm going to finance but I'm hopeful the incentives remain similar given the fact that the 2015's will soon be here, maybe $500 less or $500 more. As of now here are the numbers:

Final price (includes CA taxes / registration fees and the initial starting price is at invoice): $28,800

Out the door price (includes current incentives): $25,800

Down payment amount: $5,800

Amount to be financed through Ford: $20,000

As I said previously, these are not exact numbers but should be very similar. Now I will get into income and how much debt I have.

Monthly income before taxes (past month): $3,768

Average monthly income this year before taxes (first five months): $3,342

Minimum monthly student loan payments: $114

Monthly rent: $650

Minimum credit card payments: $70

Total debt payments per month: $834

Debt to income ratio: 22% (using this past month of income - On a side note, I do make cash but cannot prove that but it's usually at least $300 per month)

I've done some research and it seems like you shouldn't go over 36%. Supposedly this also helps you with getting approved and receiving a better interest rate but this means my car payment cannot be more than (plan on having a 60 month term) $516 if I go off of this previous months income.

If I go from my average monthly income so far this year, the most my car payment could be is $381 to fit into that 36%. Using an auto loan calculator with $20,000 financed, I need to get a 5.5% APR to be safe. That puts my monthly payments at $382.02.

Just to give additional information this is pretty much all other expenses I am obligated to pay each month. The only thing I'm not really including is gas, groceries, and basically any type of entertainment.

Other payments I am obligated to make every month:

Cable / Internet / Phone bill: $70

Electric bill: $25

Health insurance: $140

Total monthly required payments: $1069

Now I will get into detail about this whole car buying process and all background information needed. Going through this process really opened my eyes to either how much sales people lie or don't know squat in regards to credit. I think it may be the former but even the average person really doesn't have a clue about credit. I didn't know anything either up until about a year ago.

I'm currently 25 and have never had a credit card until August 08/2013 of last year. I opened up a secured card after being denied from Chase and my local credit union for an unsecured card. The only route I could take was to go secured. After making all my payments on time for six months I decided to try to get approved for two more. I was accepted by both, the American Express True Earnings Card (Costco), and Discover IT. I was ecstatic. I opened both these cards the first few days of March 03/2014 this year. So my credit history is pretty short.

The average age of my accounts is 1.4 years and the oldest account is 3.2 years. The 3.2 year account are my student loans. I've been paying them off for a little more than a year. I still owe around $10,000 and have made every payment on time. I have also made every credit card payment on time and have kept my utilization always below 20%. Right now it's around 9%. My limit for the secured card is $500, Amex $7500 (literally just got an increase two days ago), Discover $2500. Back in 06/2013, when I applied for a Chase credit card without knowing anything about credit, I was denied, and received a letter in the mail giving my FICO score of 600. Today, I have improved that to 725. By the end of the month it will be at least 730+ due to my credit limit increase as well as lowering my utlization. I know the score isn't everything and I've never had an auto loan before, since that's mostly what's important, but it helps. I also have no negatives in my report.

Back in December 12/2013, I applied for a car loan through my credit union. Mind you, I only had three months of on time payments with the $500 limit secured card. It wasn't really a surprise when I got denied, but I was disappointed. So I decided to wait six months and basically try again. I'm glad I did because I have more money now then I did before and the incentives are better.

Given all the above information, do you think I will get approved by Ford? If so, what APR do you think I'll get? It's key to get approved by them because the best incentives being offered are only if you finance through them. I understand it's going to be, "standard rates," but I have been doing extensive research and plan on refinancing through my credit union as soon as possible to get the lower APR. I figured out that the three month rule the financial adviser told me (like most people) that I cannot refinance before the first three months. Total bs, they just don't get paid, and it might ruin my relationship with that dealer but I can live with that. If I do get approved but my APR is in the double digits 10% or more and I sign the contract and purchase the car, I'm worried with the additional hard inquiry, more debt, being denied from my credit union before, that my local credit union might not approve me.

Does it change things once I am approved for an auto loan regardless of the APR? I don't want to be stuck paying a ridiculously high APR for over three or four months. I understand I may have to wait a month or two before I'll get approved for a refinance but really want to avoid anything longer than that.

Oh and I forgot to add, If they flat out decline me or give me a higher APR I'm going to have to get a cosigner. I hate asking for help from my parents but in this situation I will have to. I'm sure I'll receive less than 4.5% with a cosigner. But like I said, that's the last resort. The only problem I could encounter if a cosigner is needed is that my mother (the one who would likely cosign) started a new job about a year and a half ago in real estate. She's still getting started so she's not making nearly as much as she used to. She's leased and bought at least 2-3 cars and from what I know, has never had any problems.

Sorry for the lengthy post just thought it was needed with such a large purchase. Thanks for any and all advice, I really do appreciate it!

Remember0 · ‎06-08-2014

Wow, kudos to you. Super informative post that really lays out your situation...it's late so let me know if I missed one of your questions.

I don't think you'll have any issues getting approved by Ford by yourself. I would accept an APR no higher than 4% really (5% if you really feel like donating money to the dealership). I eyeballed your DTI...you are fine. So relax lol.

Also think about applying to DCU for either a purchase loan (or a refi if you need to finance through Ford to get the incentives). If you have to go through Ford and they don't give you <3%, accept Ford, but come home and refi w/ DCU the next day! Don't tell the dealer you're going to do this Pretty sure you'd qualify for DCU's 1.24% rate (with direct deposit). If you apply to DCU before you purchase, don't apply too early. Apply maybe two weeks before the definite date you are picking up the car.

SeanDylan · ‎06-08-2014

Thanks bud, this is a big financial decision in my life, I want to ensure I'm well versed, knowledgeable, and getting the best deal possible. While also ensuring I can still afford it and be okay with my monthly expenses.

You really think I won't have a tough time getting approved? I've been stressing over this for some time. They were trying to make me fill out a credit application when I ordered the car with the fleet manager but I declined. Reason being, due to my short credit history, if the car is going to take at least 6-8 weeks to arrive, I prefer to wait as long as possible before filling it out. The longer I wait, the lengthier my credit history will be, the higher my score, the less amount of debt I owe. I know it's two months at the most but I'm working with an average age of accounts at being 1.4. Those two months will put me over 1.5 years.

Another question I had in regarding credit, I've heard that lenders usually want you to have a revolving credit card for at least a year. The longest I've had one is since last August 08/2013. It also stated that living at the same residence for at least six month is important too. I moved into my current residence three months ago but now that I think about it, when it comes time to actually fill out the credit application, it's going to be in at least another 1.5 months. Which means I'll have lived here for 5.5 months and have had at least one credit card for a year. So I guess I answered my own question that I should be okay.

The other reason why I'm hesitant I don't think I'll get approved is because in December 12/2013 of last year I was declined an auto loan from the local credit union that I had a secured card with (but that was my only one). My FICO score at the time was 707. This is why I know FICO score really isn't everything.

I'm hoping you're right and not only will I get approved but I will get a good interest rate. From looking on this forum, it appears that most people highly recommend DCU. That additional .5% for direct deposit is nice. My local credit unions lowest possible rate is 1.85%. For a 60 month term auto loan with $20,000 financed, the difference between DCU and my local credit union per month is $5.29, over the lifetime of the loan it is $317.40. Almost a months worth of payment. I think it would be great to be able to have an auto loan with a credit union that I've already formed a relationship with and that is local but a month free of a car payment is enticing.

I wasn't planning on telling the financial advisor that I would be immediately refinancing. If he ends up being rude and pissing me off, maybe as I am walking out with my copy of the signed contract in hand, I might have to just tell him. Would feel pretty good. It annoys me that they are always telling people the three month non sense.

Oh, and I didn't include this in my initial post but I think it is important. I have been employed with the same company since April 04/2013. That's roughly a year and three months but by the time I fill out the credit application that will be closer to a year and a half.

Creditaddict · ‎06-08-2014

wow, they should approve you for knowing your details to the penny!

Ford needs to sell cars and they have the backing to push the loans to do so... I wouldn't worry about it at all the only question would be will they give you the current APR Specials (.9 or 1.9 I believe it is) or will they try to push you in a higher rate loan....

I would go to your local credit union and see if you can get the pre-approval from them and then go to the dealership, if you have a 1.85 or whatever from your local dealership I bet you can get ford to give you the tier 1 rate or match your credit union... if that is the case I would still go with your credit union because that relationship is way more valuable and important than a ford auto loan.

Remember0 · ‎06-08-2014

@SeanDylan wrote:
You really think I won't have a tough time getting approved? I've been stressing over this for some time. I know it's two months at the most but I'm working with an average age of accounts at being 1.4. Those two months will put me over 1.5 years.

I'm not lying to you. I really don't think you'll have to worry about getting approved by Ford. I am not a huge fan of your local CU, but I'll explain that at the end after I answer your questions. I also agree with you on waiting. I think that was a smart move.

@SeanDylan wrote:

Another question I had in regarding credit, I've heard that lenders usually want you to have a revolving credit card for at least a year. The longest I've had one is since last August 08/2013. It also stated that living at the same residence for at least six month is important too. I moved into my current residence three months ago but now that I think about it, when it comes time to actually fill out the credit application, it's going to be in at least another 1.5 months. Which means I'll have lived here for 5.5 months and have had at least one credit card for a year. So I guess I answered my own question that I should be okay.

5.5 months rounds up to 6 months. Be sure to put 6 months on the credit application. Shouldn't matter either way, but hey why not make life easy for yourself. Also make sure you change your address to the new one on your credit cards and everything if you haven't already. If you haven't already do it ASAP so the new address will show up on your credit reports. You length of revolving history (8 months or 1 year, whatever) is fine for the auto world. It's more important that you actually have 3+ CCs if possible, which you do.

@SeanDylan wrote:

The other reason why I'm hesitant I don't think I'll get approved is because in December 12/2013 of last year I was declined an auto loan from the local credit union that I had a secured card with (but that was my only one). My FICO score at the time was 707. This is why I know FICO score really isn't everything.

I'm hoping you're right and not only will I get approved but I will get a good interest rate. From looking on this forum, it appears that most people highly recommend DCU. That additional .5% for direct deposit is nice. My local credit unions lowest possible rate is 1.85%. For a 60 month term auto loan with $20,000 financed, the difference between DCU and my local credit union per month is $5.29, over the lifetime of the loan it is $317.40. Almost a months worth of payment. I think it would be great to be able to have an auto loan with a credit union that I've already formed a relationship with and that is local but a month free of a car payment is enticing.

So I'm not a fan of your local CU, sorry. They seem very conservative. I'm not sure why exactly they declined you for a unsecured card, auto loan, etc... At this point of your credit file, I think you'd be better served by looking to "better" CUs a la DCU for a refi if necessary. Your file is definitely thick enough for most financial institutions, just not your local CU and a few other very conservative lenders. Also a "relationship" with a CU isn't worth $300 imo...not these days where most lending even if you have a relationship is numbers based. Heck after a year your file will probably be fine for even your local CU and you can then go back to them and use them for all future loans. So you don't have to stop using them, but using DCU for the auto refi isn't a bad thing. That way you have a relationship with 2 CUs.

@SeanDylan wrote:

I wasn't planning on telling the financial advisor that I would be immediately refinancing. If he ends up being rude and pissing me off, maybe as I am walking out with my copy of the signed contract in hand, I might have to just tell him. Would feel pretty good. It annoys me that they are always telling people the three month non sense.

Oh, and I didn't include this in my initial post but I think it is important. I have been employed with the same company since April 04/2013. That's roughly a year and three months but by the time I fill out the credit application that will be closer to a year and a half.

A) Keep your mouth shut. Why drop down to their level? You don't win anything plus you only hypothetically creates hassles for yourself. Come home and outsmartthem to cost them where it actually hurts them.

B) 1+ year of continuous employment is all lenders look for with current job imo. I've never seen a higher requirement personally except with some VERY conservative CUs. You'll be fine with 1+ year with Ford.

SeanDylan · ‎06-08-2014

@Creditaddict wrote:
wow, they should approve you for knowing your details to the penny!
Ford needs to sell cars and they have the backing to push the loans to do so... I wouldn't worry about it at all the only question would be will they give you the current APR Specials (.9 or 1.9 I believe it is) or will they try to push you in a higher rate loan....
I would go to your local credit union and see if you can get the pre-approval from them and then go to the dealership, if you have a 1.85 or whatever from your local dealership I bet you can get ford to give you the tier 1 rate or match your credit union... if that is the case I would still go with your credit union because that relationship is way more valuable and important than a ford auto loan.

Haha thanks! Those APR specials are only if you finance with the dealership but not through Ford. They'll send your information out to a bunch of different financial institutions. The problem is you only get $1500 cash back. Whereas if you finance with Ford, you receice the "standard rates," which start out at 4.9% for the top tier. That's why I want to get approved by Ford to receice that additional $1500 because I'm going to refinance immediately. They say there is no such thing as free cash but in this case it kind if is, granted it's more of a discount than anything.

The only thing is, all current incentives end 07/7/14. New incentives will then be out. I'm hoping they'll be similar if not better. The reason why I don't want to go to my credit union and gain a pre-approval is because I already know I'm going to refinance. That is, unless these incentives really hit the you know what.

SeanDylan · ‎06-08-2014

I hope you're right about me getting approved with quality interest rates!

I will be putting down six months for the amount of time I've been living at my current residence. Luckily I have already changed my address with all my financial insitituions, including my credit cards. My current address is already popping up on my credit report. Unfortunately back in August 08/2013, I was living at a different address then when I applied for my two additional cards in March 03/14, and now I am living at another new address. But as I said before, I've been here already for three months. I moved a few days after I was accepted by Amex / Discover.

I've always liked my local CU but I think you may be right. I understand why they declined my the first time. Only 1 revolving credit card with $500 through them. And I only had it 3 months before that point. The credit union I'm with is Kinecta. Not sure if you know anything about them as I am located in Southern California.

I'm kind of confused with the not worth the $300 relationship with my CU. Are you referring to my secured card with them that has a limit of $500? Or are you talking about the $300 I put down with the dealership I plan on purchasing the car from to ensure no one else could take it.

It's going to be hard keeping my mouth shut, not goin to lie but I probably will be able to. I'm going to flat out ask him again, "Since my APR is this high, how quick can I refinance to receive a better APR with a CU?" If he says I have to wait three months or else I receive a penalty or that it isn't possible and continues with the bs, it's going to be really hard not to. Don't like people who flat out lie to make a profit but we'll see. I'll try my best to keep my mouth shut lol.

Thanks for all the help you've given me so far! You're filling my with confidence. Not as stressed as I was the other day.

Remember0 · ‎06-08-2014

ll I mean by the $300 thing is if you save $300 ($5/month*60 months) by refi'ing with DCU vs. your local CU, I'd refi with DCU. No need to spend $300 (by paying a little higher interest on the refi) to build a relationship. Hope that clears it up...

And chill about moving. It's fine. To be hoenst, I've never heard of that six month rule for prime or even really upper subprime customers. And for super subprime, yeah I've heard of it, but you're FAR away from super subprime lol.

And by the way, don't take their lies personally. It's really only business, not personal. Same when you refi. It's not that you have a personal vendetta against the dealership and want to screw them out of their flat. Rather it's just business. You can save money by re-fi'ing, so you do.

SeanDylan · ‎06-08-2014

I was doing some research to figure out if any of my local CU's offer anything close to what DCU offers. The best I found was Northrop Grumman Federal CU. With the direct deposit option, it gets down to 1.44%, without direct deposit it's 1.69%, still pretty good. Does anyone know anything about them? I've heard using their website is a pain to make payments and what not. How is DCU?

The other local CU's all hover around 1.7% APR.

notfancy · ‎06-08-2014

Don't worry about moving. I was approved for credit cards the same month that I moved, and I was approved for an auto loan 3 months after I moved.

Also- Remember0 really knows his stuff when it comes to auto financing!

625 EQ FICO Current Score: 660 DCU EQ FICO/ 645 Scorewatch EQ FICO , EX FICO 664, TU FICO 737 (08/2014)
Goal Score: 700 Seedling again as of 07/29/14