Auto Purchasing & Credit Related Info
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What is the basic car buying rule?
Basically, the rule goes that you provide a down payment of 20% of the balance, sign a loan for a four-year period, and pay no more than 10% of your monthly income on car expenses. These expenses include any money you put towards your new vehicle, including gas, insurance, and loan payments.
What credit score is needed to buy a car?
Typically, you'll need a credit score of at least 600 to qualify for a traditional auto loan, but the minimum credit score required to finance a car loan varies by lender.
If you have previous loan borrowing history, your score can be lower and still qualify for a higher loan amount. Your debt to income ratio will factor into the amount you’re eligible to borrow as well.
What is a down payment on a car?
A down payment on cars refers to the initial sum of money applied to a purchase being financed by the purchaser. When making a large purchase, many buyers will pay some of that cost upfront in the form of a down payment in order to reduce the amount of money to be financed.
Should I make a down payment on a car?
It is recommended by all auto experts to put a down payment of at least 20 percent for a new car, or 10 percent if you're buying used. It doesn't hurt to put down more to maximize interest savings, but only if you can afford to.
Do I have to put money down for an auto purchase?
No. Very simple. You are not required to put a down payment on a vehicle if you qualify for the full loan amount based on your current debt to income ratio and have a qualified credit score. It is recommended to put money down on finance unless you receive a 0% offer. Any lease, if you can put a $0 cap cost reduction, it is recommended to do just that. Taxes, registration and dealership fees all vary depending on the state you’re purchasing in.
If I have a low credit score/no credit and never financed an auto loan, can I get approved for an auto loan?
Yes. Everyone is eligible to receive a loan, but have to submit the application to each lender presenting the lowest risk in order to get an approval. Which means a safe loan amount price wise, with some collateral down (typically 10-15%) and proof of income (2 most recent paystubs/or 3 months of bank statement).
*Safe first auto loan amount is approximately $18-$20k* (ask NYT Corp for auto consulting assistance)
Why did my credit score drop 100 points after paying off a car?
Lenders like to see a mix of both installment loans and revolving credit on your credit portfolio. So if you pay off a car loan and don't have any other installment loans, you might actually see that your credit score dropped because you now have only revolving debt.
How many points does your credit score go down for an auto loan?
1 to 5 points
Shopping around for a car loan can potentially impact your credit score. That's because every time you apply for a loan and have a hard credit check, your score can drop by roughly 1 to 5 points.
Multiple car loan applications will impact your credit score. However, all car loan applications and hard inquiries within 14 days are counted as just a single hard inquiry.
What is considered excellent credit when buying a car?
A good credit score to buy a car is often above 660, as you're then considered a "prime" borrower. There's no industry-wide, official minimum credit score in order to qualify for an auto loan. Generally, the higher your credit score, the better terms you're likely to get on the loan.
Can I get a 40k car with 600 or below credit score?
Yes. Your loan amount is determined by your debt to income ratio, credit score and prior borrowing history. If you have previous auto history, you will get better rates and have a higher likelihood of an approval. If you have never had an auto before, it would be based on your other established credit along with your debt to income ratio.
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