This is an auto loan applications from LA that was submitted by an applicant who wants to buy a new Chevrolet Volt and wants to do a trade in with his 2006 Toyota Prius. He has indicated that he has a $5000 dollar down payment to use. With his trade in value of close to $16,000 and his cash down, he has a total of $21,000.
So our applicant wants to get a $20,000 loan to cover the difference for the new Chev Volt. His credit rating is rather bad because of some missed payments on his Discover Card, and he has had some trouble with his Visa Cards in the past as well.
He blames on relationships and bad luck, and that is fine, but dealerships, banks, lenders, Equifax, TransUnion, and Experian don’t care at all about the reasons for not making payments on time and in full – it’s completely impersonal. It’s just a mathematical record of your payments to creditors that matters in the long run. So never take it personally when you are declined on any kind of loan.
This new car loan was ultimately approved, even with his bad credit, because he has held a solid job for over 5 years with the same employer and because the lender used the new car as security as well. The down payment factored in as well. Unfortunately, due to the applicant’s poor credit rating, his APR on the loan was high. He was approved at 11% over 3 years, which means two things – one, the bank is punishing him for his low FICO score, and they want all their money back all within 3 years (36 payments). Some lenders will often give borrowers a 4 year term on a vehicle loan if they trust that the customer will be “good for the cash”. In either scenario the lender wins out because they either charge a larger interest rate on the note, or they get their pound of flesh over a longer period of time.
|Auto Loan Amount :: $20,000|
|Auto Loan Application and Processing Speed :: Within a week please|
|What kind of vehicle do you want to purchase? (car, truck, atv, rv) :: Car|
|What City/Town, State and County do you live in? :: Los Angeles, California|
|Do you have collateral in any form? :: Yes – the new Volt, and $5000 down payment|
|What make of vehicle do you want? :: Chevrolet|
|Do you want to buy a new or used vehicle? :: New|
|Do you have a vehicle for trade in? :: Yes|
|If you have a trade in, what make is it? :: Toyota|
|If you have a trade in, what model is it? Prius|
|If you have a trade in, what year is it? 2006|
|Zip :: 90008|
|What is your employment field? :: Technician (Air Conditioning Expert)|
|Employment Position :: Service Technician|
|When are you paid? :: End of each month|
|Your credit rating to be – excellent, fair, or bad? :: Bad|
|How did you find us? :: Using Bing and Google|
|Bank Name and Branch :: Bank of America (BOA) – 3442 Wilshire Boulevard Branch|
|How are you paid? :: Direct deposit|
|Gross Amount Per Paycheck :: $2,723|
|Do you agree to have this information published online, minus your PRIVATE information? :: Yes|
|Please enter any extra information that you would like to provide? :: I would like to trade in my 2006 Prius and buy a brand new Chevy Volt |
that will be even better on fuel consumption. I’m tired of paying so much at the pumps. I have $5000 to put down on the loan, and the Prius is
worth around $16,000 I have been told on estimate with a local car dealer here in L.A. That means I need to borrow at least $19K but have an
option I want to get that will cost $1000 extra. Please get back to me at your nearest convenience.
So the above table holds the basic pre-application information for the car loan request, and the table below shows the actual loan that was approved for the three year term at 11%. Expensive, but I suppose the borrower REALLY wanted to get this car. He will be paying allot of interest over the 3 years as you can see in the table below.
|Category: Car Loan (new)||APR 11%|
|Length of Term||3 Years|
|Amount to be paid||$23,391.03|
|Total interest paid||$3391.03|
|Paid per installment||$640.85|
So there you have it. He has a hefty monthly payment of just over $640 bucks. That is a big payment for a car on his salary if you consider that his income is fixed and doesn’t have any other ways to make more money each month. He is single so he only has his one income to make ends meet. The mortgage on his house is $1350 per month, so he is in for $2000 a month right out of the gate. This means that his DTI (debt to income ratio) is at it’s maximum now, which is a hairy place to be. There isn’t any room left for an emergency loan of any kind. He wouldn’t likely be approved for any more credit from any creditor unless he starts earning more money each and every month.
This is a very common reality for many Americans who have let their wants out-weight their priorities. There was nothing wrong with his 2006 Prius and that vehicle is excellent for consumption.
He may be alright over time if he is really prudent with his money and doesn’t start racking up credit card debt on top of these monthly responsibilities. Unfortunately, life doesn’t usually go that smooth, and he may be regretting this purchase and loan in the future. I know, because I am personally paying over $650 a month on an RV loan. That crimps the pocket book allot, and I made the mistake of buying it brand new, so it’s now worth less than half of what I paid for it. Classic - my husband and I bought it on impulse. Oh well – price of an education.