Troubles getting approved for a loan

Anonymous · ‎06-04-2010

I have been trying to secure a car loan without much success, and I would appreciate some advice regarding the best course of action.

I'm looking to purchase a $25,000 vehicle and I would like to finance $15,000 or thereabouts. I have very good income so I can easily afford a large downpayment. Actually I could buy the car with cash, but I'd like to improve/diversify my credit by having an installment loan. My credit score is around 640, which isn't that bad, but I have very limited history and only one tradeline (credit card). I have one minor collection ($200 four years ago) and no major negatives.

Initially I submitted a couple of applications by myself, but those applications were quickly declined because of my weak credit. Fair enough. My sister agreed to cosign, and I figured that we'd easily get approved since she has great credit. Her score is in the 760s, she doesn't have any negatives whatsoever, she's paying for a mortgage along with her husband, and her debt-to-income ratio is reasonable.

I decided to apply with Wells Fargo first because I could meet with a loan specialist at the local branch. (I had a lot of questions, so I thought that it'd be easier than applying online.) She was very optimistic considering my high income and my sister's excellent credit. Somehow the application was declined, apparently because my sister's mortgage is only 9 months old. The loan specialist was dumbfounded and furious. She said that she doesn't give up easily, and she's now contacting higher-ups for an approval.

That's where I stand at this point. I don't really know what to do anymore, but I do have a few questions:

1. If I start applying with other lenders while the loan specialist is trying to get an approval, could it jeopardize my chances? I understand that applications within a 14 days period only count as one for the credit score, but lenders can still see those applications. I can wait a bit, but I don't want to wait too long either since I only have around one week left.

2. I have been a customer at Bank of America for 9 years. Would I stand a better chance applying with them? In general, do they grant loans easier than Wells Fargo? Only reason I didn't start with them is that they don't really have car loan specialists anymore in local branches; applications have to be submitted online. But now that I know what to do, that isn't a problem anymore.

3. Should I use my sister as primary signer instead of myself? I have done a lot of research and information is very inconsistent. Some claim that the APR is based on the primary signer, some say that the lowest credit score matters. Also her income is significantly lower than mine. Besides, having a low-credit cosigner might seem strange?

4. I could also go directly to the dealer, but I understand that it's generally much better to have financing available before that. Also I would hate to go through the buying process, only to be declined during the credit application.

Any other recommendations? Help would greatly be appreciated. Thanks!

llecs · ‎06-05-2010

I'd skip the co-sign bit and try again on your own. I'd focus on local CUs in your area. Avoid the big banks like WF, BofA, etc.

Anonymous · ‎06-05-2010

Thank you for the reply.

May I ask why you're recommending that I skip the co-sign bit? I would think that chances of getting a loan by myself are much lower, and that the interest rate would be significantly higher. I also forgot to mention that the Wells Fargo loan officer first submitted an application without co-signer, but that application didn't even go through the first stage i.e. it was instantly rejected by the system. At least the joint application reached the next stage.

In addition, I did apply with a credit union and I was declined as well. However, today I received the explanation letter and, among other reasons, it stated that my employment couldn't be verified. (That is strange because I've been working for the same company for 9 years, and it's very reputable. I can only assume that there was some sort of mistake.) Perhaps they'd have accepted the application otherwise, so I might follow your recommendation and apply again.

I'm still very curious about the co-signer part. That is, what is the significance of primary and secondary borrowers in terms of being approved and in terms of interest rate. It's my understanding that primary/secondary are meaningless once the loan is approved i.e. both are responsible and both credits are affected equally. But I really don't understand what it means during the application process.

One last question... If I apply at the dealership and they work through lenders with whom I've already applied (and been declined), will I be automatically rejected again? Or are all applications treated as "fresh"? I'd really prefer not going through the dealership but I'm looking at options for the worst case scenario. If it matters, I'm looking at a Hyundai but I don't know whether they are direct or indirect lenders.

Thanks again.

llecs · ‎06-05-2010

I think you're in great shape to get a loan on your own without any co-signer. If you have the assets to purchase a $25k car without financing, and opt to finance $15k with a $10k down payment, with a 640 (which isn't bad assuming it's a FICO), then you're there provided DTI is OK. I don't see a reason why you'd need a cosigner. The problem with these big banks is that there's no human interaction. They're a bunch of computers spitting out numbers and maybe something fell outside of what they're looking for in a prospective borrower. A CU is opposite and I bet you'd get approved right away and at a much, much lower rate that what you'd get elsewhere.

I'd start by going back to the CU you applied at and ask for details. I'm an employer and get verification calls all the time. I usually hear a clerk on the other end rattle off a bunch of questions so quickly that mistakes do get made. You can always go back and show pay stubs or 1040s and provide your own verification. If not that CU, then try another. Aside from local CUs, there are some good national ones too. I'd skip Penfed, but if you ever served, a bank like USAA or CU like Navy are great to deal with. Others include CUs like Alliant. If you stroll over to the Auto Loan Approvals thread, you'll find lots of people, with much lower scores and lower down payments, being approved for loans even at lower rates than you can get at BofA or WF. You're in great shape to get a good loan.

Per cosigning, I'd never recommend it for anyone. Of course, as you pointed out, everyone is equally culpable for the loan when cosigning, but I'd never ever never suggest anyone cosign for anyone else. I've read toooooo many stories in this forum to convince me that 'tis better to lose a friend to a "no" than it is to lose a friend because they never paid it. And I know you are on the receiving end, but if anything soured (e.g. you had a job setback, sickness, illness, divorce, death in the family, lost payment, broken billpay service, Bankruptcy, whatever), then your cosigning family member would suffer too with late(s), phone calls from the lender, repo, charge-off, judgment, and so on. One missed payment would place a permanent strain on your relationship and that carries over to extended families and so on. And I know none of that would ever happen to you, but it can happen. If you study this Board you'll find many stories on cosigning horrors. Most that did cosign never saw it coming and I suspect the ones they cosigned it for never saw it coming either. Credit-wise, the cosigner will see a score drop when the new TL is added to their CR and maybe or maybe not a small ding for the inquiry. The cosigner will also have his/her DTI impacted for the length of the loan which could impact him/her if they try to get a loan themself. Any lender would want to make sure that the cosigner had the ability to pay on the car note if you ever defaulted.

RaphaBE wrote:

I'm still very curious about the co-signer part. That is, what is the significance of primary and secondary borrowers in terms of being approved and in terms of interest rate. It's my understanding that primary/secondary are meaningless once the loan is approved i.e. both are responsible and both credits are affected equally. But I really don't understand what it means during the application process.

One last question... If I apply at the dealership and they work through lenders with whom I've already applied (and been declined), will I be automatically rejected again? Or are all applications treated as "fresh"? I'd really prefer not going through the dealership but I'm looking at options for the worst case scenario. If it matters, I'm looking at a Hyundai but I don't know whether they are direct or indirect lenders.

I'm relatively clueless on the process. Bumping for others. IME, and from what I read, the lender will look at your own first and then ask for a cosigner if rejected. Then the cosigner's credit and income would be taken into consideration. And yes, if you have a late, the cosigner has a late. If you had a repo, the cosigner has a repo. If you have a CO, the the cosigner has a CO. If you can be sued, the cosigner can be sued too.

If you reapply, then I think the lender would forget about the prev. app. I say this because my first loan was with a lender I got rejected by. I applied under new terms and added a higher down payment and they then approved me and applied hours later. IME anyway.

Anonymous · ‎06-05-2010

Try this website. http://www2.myautoloan.com/site/page/pg3792-pn_Auto_Loan_Car_Finance_Refinance_myAutoloan_com.html

They find lenders that specialize in helping people get loans that have credit scores under 680.

fused · ‎06-05-2010

@Anonymous wrote:

Try this website. http://www2.myautoloan.com/site/page/pg3792-pn_Auto_Loan_Car_Finance_Refinance_myAutoloan_com.html

They find lenders that specialize in helping people get loans that have credit scores under 680.

I'm just curious, have you used this service? Or, do you know someone personally who has?

Anonymous · ‎06-06-2010

I have not used them yet. I plan on using them when I apply for my car loan in the next couple of weeks. I have a couple of baddies I gotta take care of before I make my move though. I learned of them when I visited the website www.carbuyingtips.com (loads of useful info btw).

Anonymous · ‎06-06-2010

Thanks for taking the time to write such a detailed reply.

I also thought that I was in good shape to get a loan, but the rejections have put quite a dent in my optimism and confidence. It was particularly frustrating to be declined by the credit union, but at that time I didn't know that they couldn't verify my employment. I had submitted an online application but next time I'll visit them in person instead. I much prefer human interaction anyway. If that matters, this is Orange County's Credit Union. It appears to have a good reputation, and I'm eligible without resorting to tricks such as joining an association. I actually joined USAA too before realizing that, while anyone can obtain a checking account, eligibility for loans is rather limited.

I agree that large banks mostly rely on computers' numbers, but apparently the loan officers can override some decisions which is what the Wells Fargo specialist is trying to achieve in my case. I also agree that I shouldn't focus my efforts on getting a loan through them, but on the other hand, it doesn't hurt to submit applications online. Or does it? It's my understanding that all inquiries for auto loans within a 14 days period should be treated as one unique inquiry. Does that system actually work? Either way, this week I will follow your recommendation and focus on credit union(s) while keeping the banks as backup plan. Hopefully I'm done by the week-end, which will mark the end of that 14 days period.

As for the co-signer, I certainly understand the risks associated with that process. I know that everyone claims "Nothing will happen to me" so I'm not going to say that, but I'm confident that risks are extremely low in this case. I work in a position where unemployment is virtually inexistent (aerospace engineering) and I have more than enough savings to buy the car right away if needed. (I want a loan to build my credit history.) Also I'm very close to my sister, as we're the only two family members living in this country. That said, you're right -- things can ALWAYS happen so I would definitely prefer obtaining a good loan by myself. It would be more satisfying too.

Just in case, here is a summary of my situation in numbers:

- Income is $90,000 per year with no debt.

- Credit score is 640 on Equifax (yes this is FICO). I don't have my other FICOs but I know that Equifax was my lowest FAKO. Plus my credit files are so thin that there shouldn't be any significant discrepancies.

- I have one credit card which is 4 years old. Actually I have received another credit card last month but it isn't reporting yet. No other tradelines.

- I have one unpaid collection ($200) from 4-5 years ago, and one late payment (30 days) from 2.5 years ago. No other negatives.

- I keep my utilization under 10%. I don't even need my credit card but I've read that it's good to show some activity.

- I actually financed a car several years ago, but the lender lost a lawsuit against some customers, and as a result they had to delete our credit histories. Pretty strange, but I never investigated since I didn't care/understand credit in those days.

Perhaps someone might identify a red flag which could dramatically affect my chances of getting a loan and/or my interest rate. Actually, what kind of interest rate do you think I could be getting for a 36 months loan? I've mentally prepared myself for something above 10% without cosigner, but do you think I should be more optimistic? I can always refinance later anyway, once I have built some payment history and hopefully eliminated the negative on my credit report.

Sorry for the long-winded post. Hopefully I can give an update with good news early next week. This is the longest week-end ever...

Anonymous · ‎06-06-2010

Cass_at_myF1CO,

I actually applied through that website on the very first day, since I thought (hope that's true) that it doesn't hurt to submit several applications. They put me in touch with RoadLoans which offered me 24% for an used car... Needless to say, I ignored them. They seem legit, but I believe that they're really tailored to desperate buyers and I'm not quite there yet. Thanks though.

Anonymous · ‎06-09-2010

I would also suggest trying a credit union. Go in, take copies of your last two pay stubs, proof of insurance, and be prepared to discuss any negatives on your credit report. The unpaid negative might cause you a bit of a problem. I was turned down by a CU and also USAA several months ago because of unresolved negatives on my CR.

I think CUs are much better bets right now because the large banks are all facing the same problem -- they are all massively overleveraged and are struggling to reduce the ratio of loan liabilities to assets. So they're being much more restrictive in in their loan criteria than they were in the past. On the other hand, I think CUs are much less overexposed. Just my own pet theory, any way.

Besides, a CU will probably help you to understand exactly what the issue is, if there's an issue.