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Valued Member
Posts: 34
Registered: ‎11-12-2012
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What determines apr rate?

Ellis everyone, I am sure this was covered somewhere before so I apologize in advance.

I am looking for an auto loan sometime in late march or beginning of April ( waiting on baddie on transunion to fall off. Contacted the credit agency and they have agreed to remove it as I have paid it in full months).

From what I have researched from this site is that approval or denial for an auto loan has more to do with your dti, year and model of the vehicle, amount being borrowed and down payment amount as it is sort of a secured loan. (Can I assume that I understood this correctly?)

But what really determines your apr rate? For example, my fico updated to 696 today and I am making 75k a year. My debt is only $400 out of 4500 total available on my credit cards. I have short history of credit, longest being a year and 1 month with Aaoa 8 months.

I have asked previously wether I would be approved for a 26k car roughly 29k after taxes and fees I assume and will be putting down 3k on it. I have been assured by few members here that I wouldn't have problem getting an approval (crosses fingers Smiley Happy ) but will my apr still be high with fico score of 696? Or even though my credit score isn't that bad, due to short credit history and being first time purchase make it higher apr?

Can anyone take an educated guess as to what I might be approved for?

Thanks in advance Smiley Happy

Starting Score: 597
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Valued Member
Posts: 34
Registered: ‎11-12-2012
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Re: What determines apr rate?

Forgot to add that I only pay $800 a month roughly for bills and have been at my job for over 2 years as well as place of residence.

Starting Score: 597
Current Score: 732
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Contributor
Posts: 567
Registered: ‎10-04-2012
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Re: What determines apr rate?

Auto lenders operate (mostly) on the tier system. Certain ranges of credit scores are grouped into tiers (for example, 600 to 660 might be tier C, 661 to 700 might be tier B, and above 700 would be tier A). The lower the tier you fall into, the higher rate range you'll be approved for.

 

Every lender sets those tiers differently, but its pretty standard practice that you need to be at or above 720 to get the best rates. a 696 should slot you into second tier rates.

 

It's not sort of a secured loan. It is a secured loan. The lender holds a lien on the title which remains until the loan is paid off, at which point it gets released.

 

Auto lenders tend to base approval on how much you earn & how much you already owe (i.e. are you able to make the payments), your past credit experience and the loan to value for the car. They typically will not loan more than the book value of the car unless you are rolling FI& products like GAP insurance or extended service plans (on which they make money) into the loan.

 

So, short version, the basic loan can't be for more than the car is worth, a loan buyer will need to be convinced that you are capable of and willing to repay the loan, and your credit score will determine what rate you get offered if approved.

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Valued Member
Posts: 34
Registered: ‎11-12-2012
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Re: What determines apr rate?

So with my thin history and my fico score of 696, what range of apr am I looking at roughly? 

 

Also will approval be an issue for a 26k amount before tax and fees for a base subaru wrx? I will be putting $3000 down.


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Valued Contributor
Posts: 1,057
Registered: ‎09-29-2009
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Re: What determines apr rate?

I would tend to think that you could secure financing through he manufacturer at very reasonable rates given your information. If the baddie coming off is the last remaining negative on your report you may see a large jump in score. If other remain then the gain may be smaller. In any event your score is reasonable even without prior auto history and your income is good. No problems for you.

Best financial advice I ever got: "Just imagine what an adult would do and do that."

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Established Contributor
Posts: 839
Registered: ‎10-25-2011
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Re: What determines apr rate?

I got approved for 3.35% APR @ 650 FICO. Then again I do have more history, and an auto loan in my credit report. But I had several derogatory marks, like 3-4. Some even unpaid. I say you shouldn't have a problem getting an interest rate from 2-3% if not even lower. My coworker had no auto loan history, and a score probably similar to yours. He get a low 2% from the dealer financing. Make sure you apply at a few places and be sure to include a major bank and a couple credit unions. Then apply at your dealership last and force them to beat the rate you were offered and they most likely will. My rate was from a credit union that initially approved me for 4.89% APR, dealership wanted to beat so they offered me 3.8%, I told the credit union and then they said okay we'll go 3.75% but if you open a checking with autopay it will be 3.35%. So I went with the credit union of course because the dealership couldn't beat this rate. I ended up starting a full relationship with the credit union (Checking, savings, Auto loan for $25,700, and even a credit card $2500 limit). I couldn't be more happy with my results with only a 650 credit score.

I'm a personal banker and do a lot of auto loans serving the Houston area.
I suggest first time car buyers to read the sticky guide in the auto loan section.
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