What Lenders Consider When They Calculate a Car Loan

You’ve chosen the vehicle that you like and you’ve made good use of some of the handiest online loan calculators you can find. But before you go to the nearest financing institution, know one of the crucial things that a lender considers to calculate a car loan.

Lenders, like autolenders.com, will have you pre-approved for an auto loan if you fill out a simple online loan questionnaire. From here you can easily see that the car lender wants to know how ‘stable’ you are as they ask about your residency and employment history. If you get pre-approved, don’t get too excited. Many a lender will compute your debt-to-income ratio to find out if you are indeed a ‘good risk’ or are quite capable of settling your loan. Here’s how to do it to make sure you get the financing for your auto loan.

1.      Add your total net monthly income (including monthly salaries, overtime, bonuses, etc.). Don’t forget to add earnings from rentals or any other additional income.

2.      Add your monthly debt obligations (including credit card bills, other loan payments, rent payments, etc.)

3.      Divide your total monthly debt obligations by your total monthly income. This is your total debt-to-income ratio.

4.      A 0.36 score should cause some concern. The lower your score is the better; scores above 0.36 may cause an increase in the interest rate or the down payment on the car loan you are applying for.

Written by: Katrina Marion

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