This article is part 2 of the 4-part Lender POV Series.
Character is one of the foremost factors that a lender takes into account. In the arena of auto lending, character is judged by a borrower’s willingness and desire to pay back their loan. No surprise that this is judged by his or her credit history. The credit bureau report serves as a kind of objective, third-party vouch for a consumer’s character. We know that lenders and creditors look at your report but what, other than delinquency, do they look for?
- Credit Score: a score below 619 is widely considered “poor,” and many banks will reject such an applicant almost automatically. Subprime and 2nd chance auto lenders are more open to sub-600 scores, but a sub-500 score is often regarded as nearly certain to perform poorly.
- Credit Mix: the variety of debts the applicant has experienced. Student, home, auto, and other installment loans, as well as revolving credit card debt and equity lines of credit. Not enough debt can actually be a negative here. The lender wants to see a history of successful borrower/lender contracts.
- Length of File: unless the applicant is a first-time buyer, the lender likes to see 3+ years of credit history on file.
- Bankruptcy: lender will look for bankruptcy, especially within the past seven years, and prime lenders will often refuse to finance even dismissed bankruptcies within the past year. Special finance or subprime lenders don’t dismiss this but are often more willing to extend credit under such circumstances.
- Credit Repair: traditional lenders may frown on credit repair. Lenders who specialize in bad credit, however, may see credit repair as a positive sign of character, that an applicant is taking proactive steps to better their financial standing.
We hope this enhances the transparency of the auto finance process, and demonstrates why you have to answer so many question on any loan application (though the TALN form is pretty short).
Next installment: collateral.
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