The loan process can seem a little mysterious to potential borrowers; you research loan rates, study different lenders and their loan principles, send in an application and wait for approval. But, what happens behind the scenes once you send in the application? How does a lender decide who gets a loan or who doesn’t? How are interest rate offers determined? Before you set off to buy that new car or refinance an existing loan, here are some things about the loan process that might be helpful.
Loan applications, whether it’s an auto loan or personal loan generally call for personal information such as name, birthdate and social security number. This information is used to check a credit score and your creditworthiness. An excellent score generally gets you loan offers of lower interest rates and little, if any, required down payment. Borrowers with less than perfect credit may qualify, but at higher rates, or need a down payment.
If you are unsure of your credit score, it’s recommended that you check your credit history before applying for a loan. The three major credit reporting agencies, TransUnion, Equifax and Experian each allow borrowers to obtain a free copy of their credit report once a year. Doing this will allow you to check for inaccuracies within your credit history and report them if necessary. For more information on how to order your credit report online, visit the Federal Trade Commission website here
Your credit score is determined by several factors: the number and types of credit you have such as auto loans, personal loans, credit cards or a mortgage; the amounts you owe on each of those lines of credits, the length of your credit history, your payment history and the number and frequency of credit inquiries. Checking your own credit via the Annual Credit Report will not harm your credit score, but applying for multiple loans in a short amount of time can negatively impact your credit score. Because of this, it’s important to make sure you are ready to commit to a loan before applying.
Underwriting is the process of the lender verifying the information you’ve provided on your application. The underwriter will look at the value of the car you wish to buy, your debt-to-income ratio, or the amount you owe monthly on loans and housing costs compared to your gross monthly income, employment history, credit score and amount of credit you may already have available. Stability factors such as employment, residence history and comparable credit history with other lenders is also taken into account.
Once your credit has been reviewed and the application has gone through the underwriting process, a loan offer will either be extended to you or the application will be declined. Each application is unique and depending on your particular situation, a down payment may be required. While having a down payment isn’t always necessary, it can lower the monthly payment or allow for better terms on your loan.
While it may seem as though there are a lot of steps in the process of getting a loan approved, most loans are pre-qualified within a few hours, so you won’t have delays if you’ve already found your dream car. If you're still searching, that's okay! You can get prequalified and know your budget before visiting the dealership. If you already have the car of your dreams but are looking for better terms, we can review your application to refinance your existing loan too! Our loan specialists are always prepared to help you with any questions you may have about the loan process. We strive to make sure that your loan process is quick and easy. Contact us today at 512.434.4444
to get on your way to driving your new car!