Friday, October 19, 2012

Securing Affordable Car Loans: Factors Lenders Look For

For so many of us, the reliance on our cars is huge. We use them to drive to work, to go shopping, to pick up the dry-cleaning and to handle a host of other major and menial tasks. Unfortunately, finding an affordable car loan is not quite as easy as finding a reason to use a car.

The truth is that a car is one of the most expensive possessions we will ever have, and therefore one of the biggest purchases. Very few people have $20,000 lying around to buy a new car with, which is why financing is necessary. And with flexible repayment schedules, low interest rates and even instant loan approval, the right loan deal can be worth every effort in finding.

Even with low credit scores, it is possible to find a car loan with good terms. But while credit scores are not so important, there are other aspects that are important, ones that lenders pay very close attention to.

The Obvious Factors

There can be no surprise that factors relating to the financial status of the applicant are extremely important. In fact, an affordable car loan can only be considered so if the applicant has a regular income, a healthy debt-to-income ratio and a lengthy loan term.

Having a regular income means the borrower has the means to repay the debt, but there are other elements that a lender will look at. One is the term of the employment, with applicants who are long-term employed more likely to get the best terms, like instant loan approval.

The debt-to-income ratio is perhaps more important, with it confirming the affordability of a car loan. It stipulates no more than 40% of an income can be spent on debt repayments, so that limit cannot be broken. Also, the term of the loan has an influence, with longer terms reducing the size of the monthly repayments.

Down Payments and Cosigners

Lenders want to feel confident they will get their money back, and the best way to do this is to provide some kind of security. Generally speaking, an affordable car loan results in the car being used as collateral. So, should the borrower default on the loan, the car can be taken in compensation.

However, this is not what lenders want - they want the monthly repayments made on time, and the cash going straight to them. This is where a cosigner is more popular. They guarantee that the repayments are made, even when the borrower is unable to make them. This level of assurance makes instant loan approval very likely.

Finally, placing a down payment on the car being bought drastically reduces the size of the car loan required. This reduces the risk the lender is facing, and lowers the repayments each month, making the car purchase more affordable. However, a down payment is never compulsory.

The Realistic Application

It is never a good idea to apply for a loan which overextends your debt. For example, seeking a $30,000 loan when a more affordable car loan is all that is needed. Keeping things realistic is very beneficial in the long run, and with it handled so well, the chances of getting instant loan approval is improved somewhat.

It is also hugely useful when the applicant has a low income, because it is about reducing the cost and lowering the overall pressure to meet the repayments. Remember too that aspects like motor insurance, motor tax and the general costs of running the car need to be taken into account too. Lenders pay attention to these, since a trustworthy borrower will only apply for the car loan they need.

Donna Hammond is the author of this article. For more information about Bad Credit Unsecured Loan and Mortgages for Bad Credit please visit her website at

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