Gentlemen and Ladies, when we’re talking Mercedes – what I actually mean is – it costs bombs and tears, yes!
Prices of automobiles have hiked through the roof, and this upwards and onwards trend is not stopping anytime soon.
Only the deep pockets, deeper riches, and the deepest bank vaults can afford the luxury of owning this necessity. Whilst owning a car is very common in today’s date, buying one is still tougher than ever due to the high-priced menu.
The most common approach chosen by a common man to buy a car is a loan. So, if you’re on your way towards purchasing a car, we present to you 7 factors that might impact your Car Loan process. Here we go:
1. A Compelling Credit Score
Your credit score defines your creditworthiness!
A previous record of your rolling credits, their timely payments, the monthly due settlements, and your credit reports – all come together to put together your creditworthiness. This factor weighs in the most while determining your status as a prospective borrower.
A worthy credit score earns you an upper hand while negotiating the terms of your agreement.
2. Debt-to-Income Ratio and Proportions
A steady flow of income is computed as a major plus point while considering applications for approval. It factors in as a security and reassurance element to the moneylender.
Your Debt-to-Income ratio, that is, the ratio of your income that is spent on certain fixed expenses to your income over a given period is calculated and is to be presented to your lenders. This is done to assess your ability to take on new debt.
The impact is such that even a person with an extremely high income, but a high aforementioned ratio is offered less attractive terms.
The ideal ratio for getting approval in your terms is below 36%, with no more than 28% going towards servicing a mortgage or rent.
3. The lifespan of the Vehicle
Buying a car from sourcing a loan means that your debt is ‘secured’ against the car. So, if the car selected is one whose value deteriorates fast, the interest rates allotted will be higher, whereas, one that depreciates slowly is offered lower interest rates.
Similarly, second-hand cars are bought at higher interest rates as they are more prone to faults and failures.
4. Length of the Credit
A longer period of loan indicates a higher accumulation of interest, whereas shorter durations lead to lesser interest amounts. The amount financed to you is split into equal monthly installments. The duration of a loan is directly proportional to the interest amounts to be paid.
Hence, take into account your situation before proceeding.
5. Size of Down Payment
Larger the down payment and the lower the loan amount, the more favorable it is.
The down payment to your lender offers a sense of security to them and lowers the payable interest amounts for you. Down payments have a clear impact on your auto loans. Furthermore, it also decreases the risk of the money renderer.
If you are applying at a bank or a credit union for financing a car, you can opt to get pre-approved for an auto loan. It performs a soft scan of your credit score and informs you about your position as a prospective borrower. It briefs you about the interest and terms of the loan that you can qualify for and helps you test the waters of debt you’re soon going to be swimming in!
Consequently, you can get pre-approved from a number of sources and then navigate through your options to look for the best.
7. Employment status
Your employment status, history, and profession have a great role to play. What you do for a living, and where, affects your claim to a very great extent. A sure and secure source of income ensures the lenders of timely repayment. Low job security and disruptive circumstances can put a high-risk label on your application.
In fact, more often than not, the lenders can ask for pay stubs or bank statements as proof of your employment. Make sure you don’t wrongly tweak your job description as it can, and will, come back to bite you if and when discovered during the course of the contract.
Over to you…
Now that all the important and effective factors have been highlighted, we ensure that your Car Loan approval will be smoother than your new drive!
Now, go and book your dream car. It’s waiting for you! 😉