topic Re: Confused - How to get the loan amount I want? in Auto Loans

Confused - How to get the loan amount I want?

Anonymous — Wed, 22 Apr 2015 02:54:27 GMT

Hi all,

I've been lurking in the shadows of this great community for a while now - should have registered sooner!

Basically, I tested the waters of auto loans late last year and was disappointed; perhaps I set my expectations too high.

Within a month, I had a pull from my California credit union (member for 8 years - checking/savings/cc), as well as Honda and Volkswagen based on a $24k and $30k cars, respectively. My CU capped me at ~$14k @9% and wouldn't budge(harsh). When I asked her, "Why?", she just kept repeating $14k @9% is the best she could do and to let her know if I wanted to accept the offer. The two car dealerships were online apps and both instantly declined me. This is a snapshot of my financials at the time - October-ish?:

Credit Score: 720+ across the board

AAoA: 4 years

# of positive trade lines: 9 (About half are student loans ~$30k total) ALL payments on time and at least 2x the minimum.

# of negative trade lines: Zero.

Income: $40k

Lenght of Employment: ~5 months at current employer (5 years straight at previous)

Previous Loan Experience: No Auto Loans prior (most hurtful?); tons of student loans, though

Debt-to-Income (DTI): ~20%

Year of Car: 2014

Requested loan term (XX Months): 48/60

Down payment amount: $2k

Co-borrower/Co-Signer: Parents refuse

Other: Clean history, no baddies. No trade in; been using the bus for years. No real estate as collateral (greatest issue?)

During the time between my previous employer of 5 years and my current employer, I graduated and earned my 4-year degree.

I figured I'd at least qualify for a Honda Civic?? Double checked my credit reports and have done comparisons with others in the auto loan approvals thread. Can't pinpoint what the issue is. Would having a prior auto loan in my history be THAT beneficial? My student loans are only $200-300 a month. As a tax accountant, I don't do much... Eat, sleep sometimes, work, pay student loans, repeat. I know I can definitely "afford" the payments on a new Civic including insurance/registration/gas/maintenance.

Would it be best if I tried to convince someone in the finance department instead of the online app declining me for "no reason"? But that brings me back to: Why was the finance lady at my CU so strict, and how would I increase the loan amount? (aside from: make enough money to buy it, cash). I thought my credit score was pretty good, and myFICO listed my autoscore within 10 points of my normal scores.

Mind you, I did this all to see what I was qualified for and how much I would need improve. My current goal is to be approved for an Audi (random estimate: $40k financed) as my first, brand-new car - ever. Is there some special rule to auto loans (e.g. income:loan ratio or monthly-income:monthly-loan-payments must not exceed a certain %?). I think the most reasonable answer would be to buy a home first, and THEN a car... but let's ignore that fact and say: What if? What if I was a renter? What if Bill Gates bought a home and let me live in it for free?

Not in a rush to purchase a car this instant; just for future reference. Probably after I pay off my student loans. I could add a ton of details, but I should refrain myself from rambling on and creating a giant research report.

I would greatly appreciate any input on the matter. Thank you!

TL: DR - Refer to financial snap-shot above. Lenders denied/offered low loans. Why? And how to increase? Bill Gates.

Re: Confused - How to get the loan amount I want?

StartingOver10 — Wed, 22 Apr 2015 15:57:53 GMT

You posted that your DTI is 20% - does that mean now, before the auto purchase?

Please note - when you purchase and finance a vehicle it has nothing to do with real estate. Obtaining a real estate loan makes you a bit more stable but many thousands of people have auto loans and no real estate loans So don't concentrate on this aspect. However, if you are in the market to buy a home, then definitely purchase the home before you buy a car as you will kill your chances of getting a mortgage.

Looks like you have a couple of issues: 1) no previous auto loan experience and 2) your current debt load (if 20% is the current load)

Re: Confused - How to get the loan amount I want?

SamsungHDTV — Wed, 22 Apr 2015 16:22:05 GMT

Hello and welcome to the forums! While I'm not 100%, I've had some of my clients experience what you're going through so I might be able to shed some light.

Some banks including my employer have a maximum lending amount to a first time auto loan borrower. Simply put, yes your lack of auto loan on your credit report is hindering you from obtaining the amount you want.

For illustration, consider John Doe's profile: John comes in 800+ credit, income $200K+, has a mortgage, paid off all student loans, all else within acceptable range, but no auto loan experience. Comes in to apply for $50K auto loan and can afford comfortably. We would likely counter offer $20K (in your case $14K) or decline and give the reason, "lack of previous auto loan history".

I believe this is what your experiencing. In order to approve someone for $50K at my bank, John would have had to have an auto loan experience for half the amount (in this example, $25K). You didn't get declined for "no reason", just the loan officer or underwriter chose not to verbally disclose the reason. However, you should have received a written "notice of adverse action" detailing the reasons why and that you're allowed a free credit report. If you could find this notice, it would tell you the exact reason.

Options?:

1. Make a sizable down payment for the counter office difference. Not an attractive option, I know.

2. Apply at another bank as all lenders will have different policies. I would suggest other credit unions first, and then captive lenders second (indirect financing). Indirect lenders have more lenient approval overlays. But know how to navigate these guys. They will try to get you on a high rate on the basis of no auto loan experience. 9% is way too high given your profile, especially for a CU. Bluff and say you got an attractive rate, and will give them a chance to give you better, but will not disclose what rate you got. The finance manager should see your great history and give you a much better rate than 9%.

I hope this helps.

Re: Confused - How to get the loan amount I want?

Anonymous — Wed, 22 Apr 2015 18:53:20 GMT

@StartingOver10 wrote:
You posted that your DTI is 20% - does that mean now, before the auto purchase?

Please note - when you purchase and finance a vehicle it has nothing to do with real estate. Obtaining a real estate loan makes you a bit more stable but many thousands of people have auto loans and no real estate loans So don't concentrate on this aspect. However, if you are in the market to buy a home, then definitely purchase the home before you buy a car as you will kill your chances of getting a mortgage.

Looks like you have a couple of issues: 1) no previous auto loan experience and 2) your current debt load (if 20% is the current load)

Yes. Prior to the auto purchase - includes "extra" monthly payments made towards my school loans, if that counts towards DTI. I didn't think a 20% debt load was that high? My mistake on the real estate part; I got it mixed up with the mortgage loan prequal calculators haha. Thanks for the reply!

Re: Confused - How to get the loan amount I want?

Anonymous — Wed, 22 Apr 2015 19:35:16 GMT

@SamsungHDTV wrote:
Hello and welcome to the forums! While I'm not 100%, I've had some of my clients experience what you're going through so I might be able to shed some light.

Some banks including my employer have a maximum lending amount to a first time auto loan borrower. Simply put, yes your lack of auto loan on your credit report is hindering you from obtaining the amount you want.

For illustration, consider John Doe's profile: John comes in 800+ credit, income $200K+, has a mortgage, paid off all student loans, all else within acceptable range, but no auto loan experience. Comes in to apply for $50K auto loan and can afford comfortably. We would likely counter offer $20K (in your case $14K) or decline and give the reason, "lack of previous auto loan history".

I believe this is what your experiencing. In order to approve someone for $50K at my bank, John would have had to have an auto loan experience for half the amount (in this example, $25K). You didn't get declined for "no reason", just the loan officer or underwriter chose not to verbally disclose the reason. However, you should have received a written "notice of adverse action" detailing the reasons why and that you're allowed a free credit report. If you could find this notice, it would tell you the exact reason.

Options?:

1. Make a sizable down payment for the counter office difference. Not an attractive option, I know.
2. Apply at another bank as all lenders will have different policies. I would suggest other credit unions first, and then captive lenders second (indirect financing). Indirect lenders have more lenient approval overlays. But know how to navigate these guys. They will try to get you on a high rate on the basis of no auto loan experience. 9% is way too high given your profile, especially for a CU. Bluff and say you got an attractive rate, and will give them a chance to give you better, but will not disclose what rate you got. The finance manager should see your great history and give you a much better rate than 9%.

I hope this helps.

Thanks! Hmm. Makes sense. Sort of, haha. Never received a "notice of adverse action." Would it be plausible to contact the lender at this point and request one with no adverse effect?

Essentially, from your bank's point-of-view, you're saying that I would have to pay off a Smart car loan > to qualify for a Honda Civic > to qualify for a Porsche Cayman > to qualify for an Audi R8 > to qualify for a used Lamborghini Aventador? - a lengthy process as opposed to cash/co-signs; or I can follow Option #2 as you have explained.

That helps a lot. Thank you!

Re: Confused - How to get the loan amount I want?

SamsungHDTV — Wed, 22 Apr 2015 20:39:37 GMT

Yes, its plausible to call and request for that notice. It wont hurt you at all, however I don't know if they'll have it available. Also, I'm not 100% sure if they're required to send you one because they counter-offered you instead of declined you. But call, and see what you can find out.

To answer your question - from the bank's point of view: Yes, if you want to qualify for a $50K audi, you would have had to have had a $25K auto loan previously, say honda accord (what i drive, and about how much I paid!) But this is one bank's point of view. All banks have different points of views (risk models). So yes, follow step two and just try elsewhere if you run into this road block. Not all lenders limit first time auto loan borrowers. Its possible the credit union down the street or audi finance will finance you $50K first auto loan.

Glad it helps. Keep asking away!

Re: Confused - How to get the loan amount I want?

Anonymous — Wed, 22 Apr 2015 21:34:27 GMT

Ahh. Okay. Thanks for the clarification! You're the best!

Re: Confused - How to get the loan amount I want?

flan — Thu, 23 Apr 2015 01:48:15 GMT

@Anonymous wrote:
@StartingOver10 wrote:
You posted that your DTI is 20% - does that mean now, before the auto purchase?

Please note - when you purchase and finance a vehicle it has nothing to do with real estate. Obtaining a real estate loan makes you a bit more stable but many thousands of people have auto loans and no real estate loans So don't concentrate on this aspect. However, if you are in the market to buy a home, then definitely purchase the home before you buy a car as you will kill your chances of getting a mortgage.

Looks like you have a couple of issues: 1) no previous auto loan experience and 2) your current debt load (if 20% is the current load)

Yes. Prior to the auto purchase - includes "extra" monthly payments made towards my school loans, if that counts towards DTI. I didn't think a 20% debt load was that high? My mistake on the real estate part; I got it mixed up with the mortgage loan prequal calculators haha. Thanks for the reply!

DTI is only the required payments, and depending on the lender, potentially any payments on loans in deferred status. It doesn't include anything you pay more than minimum.

You *CAN* get a good rate on an auto loan, for a fancy car, without any prior auto loan history, but your income and DTI have to support it. And your income doesn't support a loan for an Audi, at the best rates.

But i'd bet the captive finance arm of an automaker would give you a good rate, as would lots of commercial lenders. Get your notice of risk based pricing from your CU, and the denials from the other lenders, and pull the reports they pulled. There may be something negative there you don't know about....

Re: Confused - How to get the loan amount I want?

Anonymous — Thu, 23 Apr 2015 19:04:20 GMT

@flan wrote:

DTI is only the required payments, and depending on the lender, potentially any payments on loans in deferred status. It doesn't include anything you pay more than minimum.

You *CAN* get a good rate on an auto loan, for a fancy car, without any prior auto loan history, but your income and DTI have to support it. And your income doesn't support a loan for an Audi, at the best rates.

But i'd bet the captive finance arm of an automaker would give you a good rate, as would lots of commercial lenders. Get your notice of risk based pricing from your CU, and the denials from the other lenders, and pull the reports they pulled. There may be something negative there you don't know about....

Ohh. Well that drops my DTI to about half then. I know my current salary isn't optimal - just wanted to see where I'm at right now and if there was anything else I could do to improve for when that time comes

...Unless I decide to live in my Audi as well ಠ_ಠ

But on a more serious note, my CU said my FICO score (one of their magical enhanced scores) was 783 at the time of the inquiry and capped my loan due to "no auto loan history" as I suspected and everyone pointed out to me. Simple as that. I've already checked all three of my credit reports over the past few months and they're clean. Squeaky clean. Didn't think a lack in auto loan history would hinder lending THAT much. How do they expect students to take advantage of their "graduate programs" if they JUST graduated and don't have a co-signer?! I think that's what irks me the most.

Thanks for the follow up Flan! Greatly appreciated.