What criteria are they using to determine the interest rate and fees they would charge you?
Ability to Repay the Loan
Creditors don’t want to loan money to people who cannot repay it. One standard metric is the loan to income ratio. Your home loan, for example, shouldn’t exceed 36% of your household income. However, they’re also looking at your overall ability to repay a loan. You can used car finance Okc loan shouldn’t be more than 10% of your household income, though another general rule is to not buy a car worth more than 50% of your annual household income. If you’re literally mortgaged to the hilt, few car dealers will allow you to take out a large auto loan Okc. The loan to income ratios are easy for lenders to use because they can apply it to anyone at any time; simply run the numbers to see how much of a house payment or car payment they can pay and reject if it is too high.
Overall Credit Risk
Overall credit risk is far more than the theoretical cash flow you have available to you to make payments. Some people have a good income but seem to be unable to manage their finances. They spend too much on luxuries, impulse buys, or overall lifestyle and then miss a car or house payment. If you have a history of late or missed payments, creditors don’t want to lend to you. If you’re occasionally late, they will charge a higher interest rate to offset the higher risk you pose and the likely higher burden of administering your account.
One way to lower your overall risk profile is to get a handle on your finances. Create a budget, and make sure you’re paying all your creditors on time and in full. Stop spending casually on the credit card, and stop racking up new debt. That inflates your overall debt to income ratio and makes you look like a bigger risk. Consider saving up a large emergency fund so you can pay for any unexpected bills without relying on credit. It has the side benefit of ensuring you can pay all your bills on time if your income dips.
There’s another way you could lower the risk lenders are taking with you, and that’s by limiting the risk profile of the loan. Come up with a 20% down payment on a home, and you can drop private mortgage loans in Oklahoma city insurance and qualify for a better interest rate. Put 20% or more down on a car, and lenders will be willing to offer a lower interest rate. The larger down payment could offset your prior bad credit history because there is enough equity in the asset to make it still worth something if they need to repossess it.
Shorter loan terms always reduce the risk the lender is taking, but this is especially true for cars. A three or four year car note is less of a risk than a six year car note, when they may repossess a vehicle worth half the loan value. And in these cases, they’d have to sell the car at a loss and pursue you for the difference.
The Type of Property
Lenders will be more willing to offer generous terms if the property has broad appeal, something that really matters if they have to repossess and resell it. A family sedan or pickup truck will therefore generally have better loan terms than a specialized work truck or tricked out car. A suburban family home or spacious townhome will come with a lower mortgage rate and down payment requirements than a rural property or speculative commercial real estate loan that they may struggle to get off the books.