Do I qualify and should I buy?

[AC360MR]

I've never purchased a new car before and have learned a great deal of information from these forums but I naturally still have a few questions that hopefully some more informed folks can help me with.

First let me get some of the numbers out of the way:

Credit Score: 705 EX, 701 TU

AAoA: 1.7 Years

# of positive trade lines: 10

# of negative trade lines: 0

Income: 40,000

Lenght of Employment: 4 Years

Previous Loan Experience: None

Debt-to-Income (DTI): Marginal. I have basically 3 cards I'm paying down and plan to zero out two before I app for a slight bump in my scores. No rent/mortgage. Credit util at 21%

Year of Car: 2016

Miles: 0

Purchase/Refinance: Purchase

Requested loan term (XX Months): 72

Down payment amount: 5,000

Co-borrower/Co-Signer: None

Other: Purchase price of the vehicle I'm looking at would sit right at $40k, so I'd be looking for a $35k loan with my downpayment.

My first question as the thread title implies is do I qualify for this type of loan? My second question is should I take out such a loan?

[sports1965]

let me guess

youre buying a 2016 Mustang GT huh?

No rent or mortgage?

i say go for it

[2b2rich]

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@AC360MR wrote:

I've never purchased a new car before and have learned a great deal of information from these forums but I naturally still have a few questions that hopefully some more informed folks can help me with.

First let me get some of the numbers out of the way:

Credit Score: 705 EX, 701 TU

AAoA: 1.7 Years

# of positive trade lines: 10

# of negative trade lines: 0

Income: 40,000

Lenght of Employment: 4 Years

Previous Loan Experience: None

Debt-to-Income (DTI): Marginal. I have basically 3 cards I'm paying down and plan to zero out two before I app for a slight bump in my scores. No rent/mortgage. Credit util at 21%

Year of Car: 2016

Miles: 0

Purchase/Refinance: Purchase

Requested loan term (XX Months): 72

Down payment amount: 5,000

Co-borrower/Co-Signer: None

Other: Purchase price of the vehicle I'm looking at would sit right at $40k, so I'd be looking for a $35k loan with my downpayment.

My first question as the thread title implies is do I qualify for this type of loan? My second question is should I take out such a loan?

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If that means you have no recent auto loan history, then it could be a bump in the road.  I mean with your scores and postive tradelines, you will get a car loan, but you might pay higher interest.  I had no recent auto history and I borrowed $25k for a car, and 2 weeks later cosigned for my son's that was $20K, so you can get approved, just may not be with the rate of your choice.

[StartingOver10]

Read this thread. In particular post #2 by SamsungTV where he explains that lenders have a hard limit for first time borrowers. Since this is the first time you will be getting an auto loan, I think you will be limited to the banks/lenders internal limit:

http://ficoforums.myfico.com/t5/Auto-Loans/Random-Auto-Loan-Thoughts/td-p/4005628

[AC360MR]

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@StartingOver10 wrote:

Read this thread. In particular post #2 by SamsungTV where he explains that lenders have a hard limit for first time borrowers. Since this is the first time you will be getting an auto loan, I think you will be limited to the banks/lenders internal limit:

http://ficoforums.myfico.com/t5/Auto-Loans/Random-Auto-Loan-Thoughts/td-p/4005628

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That's an interesting thread I hadn't seen before. From that post it seems like my lack of a previous auto loan will hinder my chances of securing a loan of that value. Reminds me of the struggle I had when trying to get my first credit card. Everyone wants experience but getting that first one is a hurdle.

It was actually a new F150 I was looking at although those new Mustang GTs do look sweet! Just not sure I'm ready to be a car guy after driving a truck

[Anonymous]

I suspect you will get approved, of course the issue may be APR.  40k may be tough with 40k of income but since you have low debt you might be ok.  Car loans are normally easier than unsecured credit because the risk of default is much lower because the loan is secured by the vehicle.  

[AC360MR]

I applied for a PenFed Platinum Rewards Signature Visa (Approved w/$9k SL) and figured I'd see what they would give me for an auto loan. Since I knew they used the same HP from the CC app I figured there would be no harm in looking. I was approved for the full $35k but at interest rate of 9%! Wasn't very impressed with that number for sure but good to know

[Anonymous]

Ford Motor Credit should pick up this deal. Right? With rebates, discounts and $5k down you are in a great position on the car. Your experience doesn't call for that much of a loan (more like $20k or less for first timers) but the dealer will push for you. Also, it's kinda Ford's job to put people in vehicles. Dealers also have the advantage of putting more detailed collateral and structure info into the application. So the bank making the decision will see your loan to collateral value ratio, cash commitment and rebates.

I think if the truck makes you happy, buy it.

[StartingOver10]

I agree with PenFed - the reason I think they may have given you such a high interest rate (9%) is because you have no history of installment loan or even long term payments at all - not even rent or mortgage.

You have good credit. You have income. But you have no experience making long term payments so giving you a high dollar long term payment is taking a risk from a lender POV. Higher the risk, higher the interest rate.

Consider getting a lower cost vehicle for a year and then go for your dream vehicle, that might be the way to go rather than taking on a high interest loan now. You will then be used to making a payment every month for a long term goal.

Or, alternately, take the high interest, high payment loan and refi in 12 months. But you will need to put away savings so you aren't so upside down when it comes time to refi.

In my opinion it would be better to save up additional funds so the LTV is even lower or go for the lower cost vehicle. $35k vehicle on a $40k income is pushing it IMHO.