Car Refinance - How Lenders Judge You?
A car can massage organs which no masseur can reach
. It is the one remedy for the disorders of the great sympathetic nervous system. - Jean CocteauThis is the best description of a car. It is for this reason that no one wants to part with their cars. It is for this reason that several people are still paying ridiculously high interest rates.
If you are one of them, it is time you stop making such a mistake. You may not have thought of car refinance, but it is something worth contemplating.
When you refinance you car, your new lender will pay off the old one and transfer the car title to his name. When you refinance you car, you avail loans at lower interests or longer time period or both.
If you have equity on car, which means you owe less than the cars worth, then you may also end up getting some cash on the car.
But you should know that you can refinance your car when you fulfill certain criteria. Even though every lender has his set of rules and requirements, mostly all of them consider these general factors to evaluate your application.
So, before joining the bandwagon, evaluate yourself on the following factors:
Credit History
A good credit history is important for any lender because it helps in judging the risk. A bad credit history with several late payments is a red-flag. So, start improving your credit history. Any signs of improvement will definitely have an impact on your approval chances. Even if you have had downfalls previously, making regular payments even for six months will help. It will improve your credit worthiness.
Income & Employment
Lenders will want you to reveal your gross income (income before taxes). Your income will include everything from the regular pay checks, pension, child support, etc. Even though, each lender has a criteria of his own, it is usually between $1500- $2000.
You will not only be judged on your income, but also on your PTI (Payment to Income) and DTI (Debt to Income) ratios.
PTI describes the ratio of your monthly payments to monthly income. Lenders will want the PTI to be something between 15-20%.
DTI expresses the ratio of your monthly income that goes in paying debts. It also covers taxes, fees, insurance premium, etc. Lenders require DTI limits to be around 50%.
Your employment is also an important factor. A full-time employment will be more beneficial as it will assure the lender of regular payments. Almost every lender will want you to be working at your current employer for at least six months.
Also make sure that you share accurate information, as it will be validate by the lender.
Loan to Value (LTV)
Loan to Value is a very important factor while considering your loan application. It is the ratio which shows what you owe on the car vs. the cars current worth.
Now the cars value depreciates as soon as you drive off the lot. So it is not surprising if your cars LTV becomes more than 100%. Lenders are well aware of this fact and so they generally accept something between 100% and 135%.
Loan Value
When you avail an auto loan, your car is used as collateral. The same is done even while refinancing it. The catch is that your cars value would have been depreciated. The lender who is refinancing your car is taking a huge risk and so he will offer you loan for a substantial amount only. He will not be at benefit if he assumes higher risk for a lower amount. So, lenders generally prefer the loan amount to at least $7,500.
Type of Vehicle
Almost all vehicle types are refinanced, but it is important to confirm it with your lender. A highly customized car or a vehicle used for commercial purposes will not be sold easily. So, such cars will have difficulty in refinancing.
The lender will also want to have a clean title. If the vehicle has had some major damage or salvaged, the lenders will be reluctant in approving your application.
Year of Manufacture
Lenders prefer more recent vehicles because they see no logic refinancing an old car. A lenders assumes risk by refinancing a car and an old car wont fetch him money if its sold. So, lenders dont refinance cars older seven years.
So if your car is older than that, refinancing it would become very difficult.
It is essential to understand that nothing is black and white. A lender may want you to have higher income than others. Few others may even approve your application with a lower income and a bad credit score. For few lenders even 4 years old vehicle wont be enough and some lenders may refinance your 8 years old car.
So, never lose hope or get discouraged. All you need to do is search for a lender who will accept your application. And the best way to do it is by using the web.
So dont wait anymore; get an affordable loan at the earliest.
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