Ok, I have a car with about a year left on my loan, four years of payments, no problems, no late payments, nothing. My credit has skyrocketed in the last year so I have no problems with that. I am now getting turned down for auto loans (looking to get something newer, safer, better for our baby, better gas mileage, etc.) due to my debt to income ratio. The problem is my debt to income ratio hasn’t changed since I got my current loan. Heck, I was even turned down by CitiFinance…who has my current loan (Let’s see one more year of making money off me or five more years…). Anyone have any suggestions, anyone in the business who might be able to help me? Anyone want to kill the people who messed things up for everyone else trying to get financing?
It is so frustrating.
good credit scores are no longer as strong a factor as they once were. good credit can go bad in no time at all. dti is definitely a more accurate method to measure risk from the lender standpoint. used to you could run a fairly high dti and get financing galore as money was easy to come by. now with the tightening of the credit markets it’s obviously not as free flowing.
as to what to do in your situation i might suggest a few things…
- you should have equity in your current vehicle as you are way past the typical break-even. you are bound to get raked at the dealership on a trade-in. so, if you’re convinced you’re going to buy a new car, sell yours outright first and maximize your return. that cash will be good for additional equity in the new vehicle. then negotiate, negotiate, negotiate. see who will finance you first and for how much. once you know that amount you’re now armed to talk to the dealer. used to there was 15-18% you could negotiate on vehicles (not all brands). nowadays it’s probably more like 8-12%.
- if you’re a homeowner, check the value of the equity in your home. the days of 95-97% ltv loans are gone, but if you’ve been there awhile you should have some equity. typically the home equity loans are a couple points lower than what you’ll find on the lot anyway. not to mention any interest you’ll pay will be tax deductible.
- consider buying a used vehicle at a lower value. everyone knows that you’re going to lose 15-30% in depreciation once you drive a new vehicle off the lot. unfortunately not all of us can resist temptation enough to restrain. but, if you’re strong enough to do so you’ll be making a much wiser investment in both the short and long-term.
- my guess is you’ve got a few credit cards of some sort. those credit cards are ZERO equity cards and do nothing but raise your dti. pay all of them down to under 30% and see what happens to your dti. it takes about 60 days to begin to see some effects.
- be patient, both with your situation and at the dealership. the sharks at the dealership can sense weakness. your diligence and research can go a long way in staving them off. impulse and emotion aren’t very good tools to use in making significant monetaty decisions.
i’m no financial advisor, and i’ve had my share of financial struggle along the way. you aren’t necessarily struggling, and believe it or not the inability to finance at this point is probably a good restraint imposed on you at the moment. it forces you to work on some things at home before you can play with someone else’s money. meet their ever changing requirements and they’ll fork it over as fast as you ask. hopefully by then you’ll re-consider paying someone else to allow you access to their pocketbook for something that may be above and beyond what your requirements really are.
good luck.
How much credit card debt do you have? If that number is more than zero, pay off your CCs before getting an auto loan.
The car companies always give you loans at great interest rates. I have one from Audi and Honda and no trouble at all.
typically the home equity loans are a couple points lower than what you’ll find on the lot anyway. not to mention any interest you’ll pay will be tax deductible.
Home equity loan may be tax deductible. And many have variable rates, so be careful.
Debt to income is calculated on a monthly basis. Monthly debt payments divided by monthly income.
There are only 2 solutions to this problem: 1. Less debt, 2. More income.
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Less debt: Paying off credit card debt may not help, as the monthly payments are usually pretty small
(typically 2% of your balance), so removing a $10 or $20 payment will only bring your DTI down slightly.
If you are borderline high DTI, this will work. Also, make sure the loan officer knows that you are trading
your current vehicle. That way, they will remove your current car payment from the calculation. This will help alot.
Don’t apply online. Call and speak to a human being who can make the manual calculation, instead
of some computer just adding up the numbers and spitting out the results.
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More income: Apply with your wife if her credit is as good as yours. That way, you can include her
income, and if all or most of your debt is joint, the loan officer will only include the debts once in the
calculation.