Your credit score will play a massive role when you’re out shopping for a new or used car loan. It’ll impact how much you’ll be able to borrow, what your rates will be, how long the terms are, and more! With that in mind, our agents at K & R Auto Sales want to make sure you get the vehicle you love and make sure you get approved for the loans you need. Continue reading to read tips on how to improve your loan approval chances!
Balance your Debt-to-Income Ratio
Your debt-to-income ratio is the amount of debt you owe compared to your level of income. A high debt-to-income ratio means that you have a large amount of debt compared to what you earn. This can be a sign to lenders that you are a risk for failing payments and as such, they will deny your loan application. This is regardless of what your credit score might have been, but is especially true when you have bad credit.
Generally, if about 40% of your income goes towards your debt, your chances of being approved will be greatly decreased. Keep in mind that only your debt applies here, not house bills, rent, and utilities.
Provide a Large Down Payment
Larger down payments will let you offset many of the negatives of a low credit score, lowering your rates and removing many of the upfront fees. This is because lending money is all about risk versus benefit, and a larger amount of money down means less money that’s at risk for the lender. Generally, 20 percent down is considered a good amount to place as it will greatly offset the risks.
Consider Adding a Cosigner
A final tip we can offer you is that you get a cosigner to help with your loan application. A lender might be more willing to work with you, even if you have bad credit, if someone with a better financial situation agrees to cosign your loans. They would be responsible to pay when you’re unable to and as such you need to make sure your cosigner can afford the risks.
These are just three tips for making your loan application experience a little easier, and to help improve your chances of getting approved! To learn more about what you can do, or to learn about what you can do when you’re working with bad credit, contact our agents today!