Question for anyone in financing.
1/31/10, 06:40 PM
#21
MOTM Committee Member
If you go through Jeff (05fordgt) or Brian(Five Oh Brian) you get them for a couple hundred over invoice. which is subtantially less than msrp
1/31/10, 07:02 PM
#23
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1/31/10, 08:15 PM
#25
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You have received some sound advice here. The biggest thing that I see, that you have no knowledge of, is your credit score and how it affects your buying power. From what I have read, you have only had two car loans, one which you paid off before the loan was due, (the end of the term) and will likely do the same with your current loan. Also, you have had no other loans or credit cards, correct?
Your credit score is based on some of the criteria already established in previous posts. Some others are debt to income ratio. Ability to pay and history of paying. Length and type of employment, length and type of residency and others that don't come to mind right now.
I am not trying to discourage you from your dream car, as I also see you being approved based on the info you are giving, BUT, you do throw up some red flags that may or may not affect this upcoming loan, or maybe a house in the future.
The first that comes to mind is your residency. Living with your parents may seem to be a good thing because it limits outgoing debt, but actually hurts because the banks look at the fact that you are probably not and shouldn't be living with them forever. What happens if you need to move out? They realize this and adjust accordingly. It also doesn't establish any ability to pay for self-sustained living expenses. Same as renting from friends.
Your employment history sounds good, but if you are like most painters, you are self-employed. That means you don't have W2s to show for it. You may need to show tax returns. Which brings another aspect to self-employed. Most don't "show" their actual income, so they can pay less taxes. This works for paying less taxes, but decreases your buying power. You may make $25,000, but claim $18,000, decreasing your buying power substantially.
As stated before, banks don't like to see you pay off your loans early as this means they aren't making any money off you. Which is the whole reason they loan that money to you. Banks like to see at least two years of payments before paying off a loan. Paying it off too soon can hurt your credit score.
Not having credit cards can hurt you just as much as having credit cards and maxing them out. This due to the fact your score is also based on percentage of available credit. If all you have is a car loan that started at X amount and you have only paid it down maybe 10 precent, guess what? You are high risk because you are still using more than 50 precent of your available credit. But if you had a couple cards that had not been used for more than 5 to 10 percent of their limit, it would actually lower your risk and increase your percentage of available credit versus used credit, thus increasing your score.
Debt to income, is a huge aspect of your credit score too. The proper ratio for all debt versus income is less than 50 percent including a house payment. In fact, most will tell you that you shouldn't be above 40 percent.
All of these things that I have explained, have a certain amount of gray area and may not be taken into account by certain lending institutions as greatly as others. This is mostly information that I hope you and others will be able to use to hopefully improve their credit score to attain better interest rates and terms on loans besides just cars. And give you a better understanding of all of the variables involved in credit scores.
Lou, one of the first things you need to do, is get a copy of your credit report and see what it tells you. You would be surprised what you might on there.
Next, I would try to establish a personal relationship with a local bank or credit union that does do direct loans, not in-direct. What in-direct means, is that they simply fill out an application and send it in to a lending officer who isn't on-site and doesn't take into account your personal history and dealings with you. You are simply an app. #.
Hope this helps you and others out. Good luck!
Your credit score is based on some of the criteria already established in previous posts. Some others are debt to income ratio. Ability to pay and history of paying. Length and type of employment, length and type of residency and others that don't come to mind right now.
I am not trying to discourage you from your dream car, as I also see you being approved based on the info you are giving, BUT, you do throw up some red flags that may or may not affect this upcoming loan, or maybe a house in the future.
The first that comes to mind is your residency. Living with your parents may seem to be a good thing because it limits outgoing debt, but actually hurts because the banks look at the fact that you are probably not and shouldn't be living with them forever. What happens if you need to move out? They realize this and adjust accordingly. It also doesn't establish any ability to pay for self-sustained living expenses. Same as renting from friends.
Your employment history sounds good, but if you are like most painters, you are self-employed. That means you don't have W2s to show for it. You may need to show tax returns. Which brings another aspect to self-employed. Most don't "show" their actual income, so they can pay less taxes. This works for paying less taxes, but decreases your buying power. You may make $25,000, but claim $18,000, decreasing your buying power substantially.
As stated before, banks don't like to see you pay off your loans early as this means they aren't making any money off you. Which is the whole reason they loan that money to you. Banks like to see at least two years of payments before paying off a loan. Paying it off too soon can hurt your credit score.
Not having credit cards can hurt you just as much as having credit cards and maxing them out. This due to the fact your score is also based on percentage of available credit. If all you have is a car loan that started at X amount and you have only paid it down maybe 10 precent, guess what? You are high risk because you are still using more than 50 precent of your available credit. But if you had a couple cards that had not been used for more than 5 to 10 percent of their limit, it would actually lower your risk and increase your percentage of available credit versus used credit, thus increasing your score.
Debt to income, is a huge aspect of your credit score too. The proper ratio for all debt versus income is less than 50 percent including a house payment. In fact, most will tell you that you shouldn't be above 40 percent.
All of these things that I have explained, have a certain amount of gray area and may not be taken into account by certain lending institutions as greatly as others. This is mostly information that I hope you and others will be able to use to hopefully improve their credit score to attain better interest rates and terms on loans besides just cars. And give you a better understanding of all of the variables involved in credit scores.
Lou, one of the first things you need to do, is get a copy of your credit report and see what it tells you. You would be surprised what you might on there.
Next, I would try to establish a personal relationship with a local bank or credit union that does do direct loans, not in-direct. What in-direct means, is that they simply fill out an application and send it in to a lending officer who isn't on-site and doesn't take into account your personal history and dealings with you. You are simply an app. #.
Hope this helps you and others out. Good luck!
1/31/10, 08:49 PM
#26
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Uhh I checked my credit score once and it was over 700. Than I got my car loan and they told me my credit score was like 685+. Maybe a different credit bureu? What im not understanding though, is in the begining on a loan you pay interest first, that way the bank gets their money, shouldnt I be paying interest in the year-year and a half Id be paying the loan, than when the time for the pay off comes at the dealer they get the lent money on top of their interest? I always thought thats how it worked. Also, wouldnt having some credit card debt be a red flag now since I have more debt? I mean I will eventually get a credit card, I just dont really need one right now.
1/31/10, 09:08 PM
#27
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There are three different bureaus. What I found was that most banks use TransUnion in my area, but there is also Equifax, and one other which I am drawing a blank too. Sorry. Just because you have a credit card, doesn't mean you have to use it. 
You can get one, use it for a specific item, let's say $120, then pay it off when you get your bill, thereby not increasing your debt. Its all about restraint. Or pay all but $20 of it off then pay that off the next month. Just don't use more than 50 percent of your limit.
Anytime you make an inquiry to the bureaus, it lowers your score. That's why its important to NEVER give a dealer or bank your info, until you are ready to purchase. Even then, you should request that they only send it out to some specific lenders. Some finance guys who don't know how to structure a loan properly, will click 20 different banks and hit send!
You can get one, use it for a specific item, let's say $120, then pay it off when you get your bill, thereby not increasing your debt. Its all about restraint. Or pay all but $20 of it off then pay that off the next month. Just don't use more than 50 percent of your limit. Anytime you make an inquiry to the bureaus, it lowers your score. That's why its important to NEVER give a dealer or bank your info, until you are ready to purchase. Even then, you should request that they only send it out to some specific lenders. Some finance guys who don't know how to structure a loan properly, will click 20 different banks and hit send!
1/31/10, 09:14 PM
#28
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What do you mean an "inquiry to the bureaus"? Do you mean apply for the loan, or check the credit score? I know applying for a loan and getting turned down effects the credit score.
1/31/10, 09:26 PM
#29
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An inquiry is when a dealer sends out your app to a lender. AKA a hard inquiry. When they or you look up your credit score its called a soft inquiry and doesn't affect your score like a hard inquiry. Each hard inquiry affects your score. The more lenders they send it to, the more hits to your score.
Doesn't matter whether they approve you or not. Too many inquiries hurts. It does hurt more if they turn you down. Too many inquiries all over town(going from dealer to dealer) hurts and shows you can't even figure out what you want to buy.
Another soft inquiry is when a mobile phone co. or insurance company inquires on your credit.
Doesn't matter whether they approve you or not. Too many inquiries hurts. It does hurt more if they turn you down. Too many inquiries all over town(going from dealer to dealer) hurts and shows you can't even figure out what you want to buy.
Another soft inquiry is when a mobile phone co. or insurance company inquires on your credit.
2/1/10, 03:33 AM
#30
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...What im not understanding though, is in the begining on a loan you pay interest first, that way the bank gets their money, shouldnt I be paying interest in the year-year and a half Id be paying the loan, than when the time for the pay off comes at the dealer they get the lent money on top of their interest? I always thought thats how it worked...
Your monthly payment would be $405.53. Your first and last payment would break out this way:
Your first monthly payment of $405.53 would repay $272.19 of your principal (the loan amount) and the $133.34 remaining would go to interest. Your last monthly payment of $405.53 (if you didn't pay it off early or make extra payments along the way) would repay $402.84 in principal and just $2.69 in interest.
Hope this helps
!
2/1/10, 01:17 PM
#31
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I got beat up pretty bad by my credit union when I went to by my GT500. My lowest credit score of the three was 723. They still wouldn't finance me for $40k over 72 with my having put $11k down. Keep in mind my total bills, including car payment, are about 1/3 of my monthly income. Money doesn't come quite as easy anymore and I have a great credit history.
Last edited by bpmurr; 2/1/10 at 01:19 PM.
2/1/10, 05:23 PM
#32
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You don't actually pay ALL the interest first (on a loan from a legitimate lender, anyway). It just seems that way because you pay interest on a declining balance. In other words, in the early years of your loan your balance is higher so the portion of your payment that goes to interest is greater. IIRC you were talking about a 20K loan at 8% for 60 months--
Your monthly payment would be $405.53. Your first and last payment would break out this way:
Your first monthly payment of $405.53 would repay $272.19 of your principal (the loan amount) and the $133.34 remaining would go to interest. Your last monthly payment of $405.53 (if you didn't pay it off early or make extra payments along the way) would repay $402.84 in principal and just $2.69 in interest.
Hope this helps!
Your monthly payment would be $405.53. Your first and last payment would break out this way:
Your first monthly payment of $405.53 would repay $272.19 of your principal (the loan amount) and the $133.34 remaining would go to interest. Your last monthly payment of $405.53 (if you didn't pay it off early or make extra payments along the way) would repay $402.84 in principal and just $2.69 in interest.
Hope this helps
!Got ya. So they are making something off of me if I pay my loan off in the first years and a half.
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