When seeking funding to buy a used 4WD SUV in Phoenix, San Francisco, Portland, or any other major city, your creditworthiness is one of the few factors that can affect how your loan application will go. The problem is that know and increasing your FICO scores may not be enough to make yourself appear as a less risky borrower.
Auto loan lenders might use unique credit scoring models to assess each buyer’s likelihood of committing delinquency. The said models are specific to the automotive industry, so their variables are generally unknown to the public.
Nevertheless, scoring low in the latest basic FICO models will probably guarantee low FICO auto scores too. Submitting your application to your prospective auto loan lender with either fair or poor credit will restrict your financing options.
Then again, there are ways to make up for it to still qualify for a favorable auto loan.
Lower Your Debt-to-Income (DTI) Ratio
The DTI ratio is a metric that shows how much of your gross monthly income goes toward debt repayment. The more indebted you are, the less attractive you are as a borrower. A high DTI ratio, combined with poor credit, sends a message that you are a bad manager of your own finances.
Keep your DTI ratio as much as possible. In general, it should be less than 43%. But being able to pull it down to 36% or below can open up more doors for you. A good DTI ratio is an advertisement that you do not bite more than you can chew and deserve your prospective lender’s trust.
Prove That You Have Stable Employment
Every loan application comes with job verification. Any lender would want to know how much time you have spent in your current company or plying your trade to evaluate your capacity to repay your financial obligation over the long term.
Ideally, discerning lenders would want borrowers to be on their jobs for at least 24 months. But if you are far from celebrating your second anniversary of your current employment, your application will not necessarily be dead on arrival.
You may just have to provide some explanation for why you are relatively new in your company or line of work for more context.
Put Down a Large Sum
Do you have plenty of cash to spare? Paying a large down payment could make a conservative lender forget about your poor credit. The more you own in your vehicle outright, the more likely you are to pay your auto loan punctually because you have a lot of skin in the game.
Moreover, you will have to borrow less, which diminishes the risk your lender has to take upon accepting you as a customer.
Trade in a Vehicle
If you do not have enough funds to increase your down payment, pursue vehicle trade-in to sweeten the deal. Understand you may pocket more cash if you deal with a private buyer, so consider trade-in as a move of last resort to reduce how much you need to borrow.
Qualifying for an auto loan is not the hardest thing in the world. But you ought to have good credentials to snag a favorable deal. Most lenders do not expect every borrower to be perfect but make sure that you have redeeming qualities you can use as leverage during negotiation.