topic Re: Chance of approval? in Auto Loans

Chance of approval?

nmk94 — Sat, 26 May 2018 18:52:47 GMT

We are looking to purchase a new car for my wife at the end of the year. She has excellent credit (788 FICO8 on her TU). She's had 3 auto leases in the past, all with perfect payment histories. This will be her first purchase. The problem is she doesn't have a job anymore as she's in grad school.

My credit is low right now, and my CR littered with big negatives like charge-offs as I had a business that suffered a few years back. I'm in rebuild, but won't be anywhere near decent shape by the end of the year. So the loan will have to be on her credit.

Based on the fact that she doesn't have job, will that keep us from getting a loan? Will we have to pay exorbitant interest?

Never bought a car in these circumstances so lookng for some guidance. Thank you!

Re: Chance of approval?

Appleman — Sun, 27 May 2018 13:01:05 GMT

With applying for credit cards you can utilize household income. For instance my wife does not make a lot of money but using household income she is approved for about any credit card she would like.

However, when it comes to getting an Auto loan she cannot qualify by herself as she does not have documented income. I do know there are people who have discussed that with a high enough credit score they have never had to provide proof of income.

My answer would be that you would both need to apply and put household income. Others may have differing opinions.

Re: Chance of approval?

Anonymous — Mon, 28 May 2018 18:18:07 GMT

Hi nmk94:

The consensus seems to be that proof of income is only needed with low credit scores. Based upon responses to the thread listed below (a little over a year ago) the magic number seemed to be around 700 FICO auto score (one poster said he got it with a 650 and another said above 730). Furthermore, since your wife had 3 good, PIF auto leases in the recent past (assuming they have not aged off and are still showing on her CR), this nearly guarantees no need for POI. https://ficoforums.myfico.com/t5/Auto-Loans/Any-car-loan-approval-without-income-verification-or-proof-of/td-p/4889639

But there is one thing that was not mentioned and could be confusing to the uninitiated. POI is not the same as stated income. While a particular auto lender, bank, FCU may not ask for Proof of Income, they most likely will ask for an Amount of Income. I think that all such applications ask for your employment status and/or monthly/annual income. Employment status is unimportant since some of us are retired and thus not employed (verses unemployed). That does not mean we do not have income. You might want to verify this with a solid source, but I believe (based upon the CFPB data listed below) that if your wife puts “N/A” under employment and provides the household income (as long as she lists all household debts if asked, not just hers) then she would be alright with the banking laws.

On November 4th, 2013 the CFPB (Consumer Financial Protection Board) revised the 2010 CARD act. Now this is for CCs, but the revised wording clearly applies to the TILA (Truth in Lending Act) section 127(c)(8) of the CFRs (Code of Federal Regulations) as implemented in section 1026.51(a) and (b) which involves all domestic banking actions/decisions. Here is the ruling https://files.consumerfinance.gov/f/201304_cfpb_credit-card-ability-to-pay-final-rule.pdf

Basically what it states (and changes in the law) is that a financial institution (aka bank or any entity which makes loans) now MUST “consider third party income [income that a spouse, partner earns or total household income] when making lending decisions for individuals over 21 years of age, as long as they have a reasonable expectation of access to these funds.” So, I repeat; I believe she could legally list household income and use her scores alone; but as I said:

THIS IS NOT LEGAL ADVICE, SO PLEASE CONSULT AN ATTORNEY AND/OR BANKING PROFESSIONAL BEFORE MAKING YOUR DECISION BASED UPON THIS INFORMATION.

Good Luck

Re: Chance of approval?

Appleman — Mon, 28 May 2018 19:02:02 GMT

ytzak, a great post and I did take time to read the myFICO forum link and much of the other link you provided.

After reading/skimming the 86 page document it appears to only cover Credit Cards and increasing credit lines. It is very specific in the language and I did not see any references to automotive or secured asset lending. There is language that is specific to Credit Card issuers and 'open-ended credit contracts' aka Credit cards.

I agree with your last paragraph prior to the red disclaimer, but only as it applies to the approval of credit cards.

I do not believe the same rules apply to auto loans. But, the experiences of some in your referenced myFICO thread, indicates that few have been asked for POI above certain FICO scores.

If this indeed works, I will likely have my wife finance her next car and listing our household income.

OP, please let the community know how things work out.

Re: Chance of approval?

Anonymous — Mon, 28 May 2018 19:41:10 GMT

Hi Appleman:

Thanks for your kind words. I agree the CARD act was for CCs but as I said, “Now this is for CCs, but the revised wording clearly applies to the TILA (Truth in Lending Act)…” I did not get into details because I cannot verify the validity, but let me point you to where I got the data to make my statement.

This is the TILA https://files.consumerfinance.gov/f/201503_cfpb_truth-in-lending-act.pdf and on page 9, if you follow the flow chart (Coverage Considerations under Regulation Z) you will see directions asking “Is the loan or credit plan secured by real property or by a dwelling?” If yes, then Regulation Z applies. You will see that throughout the data, the regulation discusses all kinds of loans (property/homes, CCs, student, and autos). So as a result, I feel confident that this extrapolation would be legal; however, that is an unprofessional opinion.

Thanks again, and I too am going to have my wife finance her next car (she's looking as I write). I'll post back results she gets (I may even go with her when she's ready to close a deal). Hey honey, your on your own.

Re: Chance of approval?

Anonymous — Mon, 28 May 2018 19:43:56 GMT

Sorry but the TILA URL didn't copy correctly. I tried to send you directly to the page. Here is the link again; but you will need to scroll down to page 9 manually. https://files.consumerfinance.gov/f/201503_cfpb_truth-in-lending-act.pdf

Re: Chance of approval?

nmk94 — Mon, 28 May 2018 19:58:08 GMT

Thanks all, especially ytzak. Very useful info. If score-only for approval, we should be fine, and if they ask for household income that would give us an easy approval as well I'd imagine ($90k or so and higher this year). Plus we won't be getting an expensive car, less than $20k in financing, most likely closer to $18k.

I figure I should pull her other two scores to see where she stands overall.

Also, FWIW, even though my credit is not good, my auto loan history is stellar. If it ever got to the point they wanted my info I suppose that's something working in our favor, though hopefully it doesn't get to that point, as I'm concerned about getting the best rate.

Re: Chance of approval?

Appleman — Tue, 29 May 2018 21:59:16 GMT

I am enjoying this discussion. Here is hoping that MarvBear takes a look at this thread and chimes in. I believe he is in the Auto Lending business.

I look forward to hearing how the car buying goes.

The one thing that still is sticking with me is how the lender figures out DTI ratios without provable income. For example, if Spouse A makes all the money and carries all/most of the debt, Spouse B with great credit and little debt should qualify for about any loan the household income would theroretically support. Spouse B could have a 2% DTI compared to Spouse A who may be at 50% for the DTI.

I hope for the sake of the OP it works out that they can use the credit of one and income of both (should result in better terms).

Re: Chance of approval?

nmk94 — Tue, 29 May 2018 22:37:10 GMT

I think I may just start reaching out to some lenders to see what they say. Figure they will know best. Will update this discussion with any findings!

Re: Chance of approval?

Anonymous — Wed, 30 May 2018 04:03:59 GMT

Howdy Appleman:

You asked, “The one thing that still is sticking with me is how the lender figures out DTI ratios without provable income.” Let’s get on the same page and come to common terminology. DTI is a mortgage term used to estimate total housing costs verses income (for front-end) and total expenses (housing and other debts) for back-end. For an auto loan, as in this thread, we are talking about POI. Proof of income that has nothing to do with debt ratios (which is what the OP was discussing). Of course, common sense tells us that a person’s debts cannot be above their income; but when has FICO (and lending policies) had anything to do with common sense?

The OP, correctly, is questioning POI and how FICO justifies it. Respectfully, you seem to be confusing DTI with POI. You say; “For example, if Spouse A makes all the money and carries all/most of the debt, Spouse B with great credit and little debt should qualify for about any loan the household income would theoretically support.” Absolutely correct! I point you to my posts and references above (ignore the technical arguments we had for they are mostly semantic). If my premise is correct (and I feel I have presented it accurately with verifiable, supporting facts), then the spouse “with great credit and little debt should qualify for about any loan the household income would theoretically support.” This is the reality (sickness) of credit modelling. We may not agree with it, but those are the rules and if we want to be in the park we need to understand them. Next thing you know we hit a homerun.

You say, “Spouse B could have a 2% DTI compared to Spouse A who may be at 50% for the [same] DTI.” Okay, once again, what does that have to do with POI? DTI is not proof in and by itself. Ignore the truth about DTI’s link to mortgages and use it as a credit calculator. Ignore Spouse A and B but just use one person. Now I could have a 10% DTI by having a $50 monthly debt while simultaneously having a $500 monthly gross income. That is a low DTI by this revised definition; but does that prove that I have the income to pay for an $800 a month lease on a Ferrari? Of course not. Don't confuse the two.

Nevertheless, I have not fully addressed you comment about “provable income.” Well I guess I did when I explained the difference between DTI and POI. DTI has nothing to do with POI because POI is PROVABLE INCOME. That’s what the auto lender wants to see.

Re: Chance of approval?

sccredit — Wed, 30 May 2018 16:34:00 GMT

Apply with your wife as first applicant and you as second. Benefit of her credit and your income.

Re: Chance of approval?

Appleman — Wed, 30 May 2018 19:30:16 GMT

A lender will still look at the Debt to Income ratio for an auto loan. In talking with loan officers over the years, they say that below a DTI of 40% (including the projected car payment), they can get a loan approved without much of an issue (given a good FICO). When a lender pulls your credit they will get your score as well as your current monthly payments. They plug in your stated income and come up with a DTI ratio. So true, you can take stated income and not need proof of income but, they will look at the ratio.

POI does have something to do with DTI if the lender needs to verify what the consumer stated. In your example, the lender is going to plug in the $800 Ferrari payment (don't we wish) plus current debt payments ($50) coming up with a monthly obligation of $850 on a $500 income. In this example the DTI would be 170% and not the 10% you stated when considering if one were to qualify for the loan. Just like in a mortgage, the DTI needs to be below a certain percentage to gain approval, the back end in your terms.

I do not believe I am confusing POI with DTI. I understand the difference in the terms. To obtain a DTI ratio an income is needed, either stated income or POI. And, I would say DTI is not a term that is exclusive to mortgages.

When does this really matter? If a person applies for an auto loan with a great FICO score and they inflate their income. The loan gets initial approval at the dealership and everything looks great. They drive the car home but the loan still need to be finalized at the bank. The final person decides, we better verify the income. If this happens and the income will not support the debt the loan will most likely be denied or the terms altered.

Respectfully, Appleman

Re: Chance of approval?

Anonymous — Thu, 01 Nov 2018 10:01:20 GMT

I used to sell cars. Had hard luck (disabled) customer, had 2ndary financing in place, week later lender wanted her unrolled from car. Income disability for her and her son. Mortgage paid by family trust. Very bad credit, and most recent car hit by drunk driver, she had bought gap ins, so car got paid off. No trade in, 400 down.

I kept her in car with a close friend cosigning for her. Friend retired, Social security/pension 1500 mo, 50k in bank (inheritance & proceeds from home sale). No mortgage/rent (inheited current house, recently moved to another state). Score 780 across board. Bank could give two f's she was retired, with low income. Score good, no housing costs, good credit risk. No documentation of any income etc required. Fed ex papers to her, she signed and sent back. She trusted hard luck friend would make payments, cosigned, good enough for bank.

Hard luck customer never missed a payment. Stopped by to thank me at xmas for working so hard for her. Moral of story, with the right score & looks good on paper, bank happy with little to no POI

Re: Chance of approval?

nmk94 — Wed, 12 Jun 2019 15:37:10 GMT

Overdue update to this thread I started.

At the end of 2018 we went to the dealer with whom we already had a history and applied to purchase a new car. It was more expensive than I'd expected, closer to $30K than $20K () Because my wife isn't working they needed me to cosign. My score is in the lower half of the 600s (was probably 620 or so at the time). My wife's was high 700s. We didn't need to provide any POI. We just had to state our income and I had to cosign (since I am the one currently earning). We were approved with a good rate, no problems at all, and drove off the lot with a new car that day.

My total debt is now higher, but I now have another auto loan that is being paid on time, so I suppose it all balances out.