If you're a car buyer that lives with your patents or other relatives and have no monthly rent obligations, the car loan make lender will use either a percentage of your income or a figure based on the average rent costs in your area. Car loans are typically for a 3 to 5 year long period. Lenders include this amount in your DTI ratio so that their assured you can still afford the car loan payment if you should move and start paying rent at some time.
Minimum Auto Insurance Calculation
Many lenders have a two required step approval process, in the first step they may say "Yes" and agree to extend a line of credit up to a maximum payment amount. The second step involves the car dealer sending over the sales numbers these as well as the collateral to the lender. In this step the lender may reject the car loan, even though the estimated monthly payment of the car is below the original approval amount. When this happens it's usually because of the minimum auto insurance amount increasing the DTI ratio beyond the limits of the lender.
For Example:
A twenty two year old single male visits the dealership and completes the credit application for pre-approved car financing prior to looking at used cars.
In the first step the lender agrees words to finance the young man up to a $450.00 per month car loan payment. In arriving at this amount the car loan lender estimated that the insurance would be $100.00 per month.
In the second step the car dealer sends over a purchase agreement for a three year old Ford Mustang GTO. Upon review the lender realizes that are it may cost the young man over $300.00 per month to maintain auto insurance on this vehicle. With the new information they reject the deal.
The bottom line is that if you to get pre-approved for a car loan prior to selecting a vehicle the lender may change their mind if the loan no longer makes sense.
Click here for more information on auto loans in Fresno.
