Over the last couple of years here i’ve fielded a few questions such as this, and read many a thread asking about this. I’ve been told i should make it a general knowledge thread… but I dunno the correct forum for it, so mods can move as fit.
These are general statements and every persons financial & credit situation is different… what i offer is a year of experience in consumer credit underwriting, as well as a few years on the sales side of that.
In other words, this is a guide and will not answer every question… but I expect this info will enlighten a few. Especially considering that NYSpeed members are growing older and able to consider larger, or more involved financing (autos, boats, and even mortgages or home equities).
Because I don’t know how much you know about lending, I’ll throw out a quick crash course. No offense intended. Alot of this is copy & paste from PMs, so it may be choppy. Deal with it 
Underwriting is primarily about three things:
Credit file: on our reports - what kind of debts & then how much; pmt history; and propensity to over extend.
Debt to income (DTI): Your debts & expenses. The minimum pmts (either stated by you, or showing on the CBRs) & your monthly expenses are totaled up and considered your debts. Your income (generally your gross income) is generally stated income for auto loans, but may require W2s, paystubs, or even tax returns when dealing in large amounts.
Your debts divided by your income gives a percentage. All lenders vary, but expect to need to be less then 60% at most. Example: $2000/mo income & $1200/mo debts this includes the proposed loan pmt
Loan to Value (LTV): This determines how much total money the bank can pay out for your loan. Remember that just because the car sells for $28, doesn’t mean the check will be written for $28.
If its a simple private sale, expect the note to be for the sale price plus taxes - and you pay the title, reg, & plate fees out of pocket.
LTV is the total note amount divided by the car value. So if you buy the car for $28, the total is now 30450 ($28000 x 1.0875). If the car value is $30k, LTV is now 102%
As a whole, these three factors have to balance for the underwriter to approve it.
Basically & very generally for all consumer loans:
If you credit file is great, the DTI & LTV can be a little higher
If the LTV is great (low), the credit can be a lil weaker & the DTI a lil higher
If the DTI is great (low), the LTV can be a lil higher and the credit a little weaker
In that order.
Finally, as far as auto loans:
The general LTV cap will be ~115%
The DTI generally needs to be below 55%
Based on those two, the Scores will need to be at least 650.
Now, if any one or two of those factors is well above par, they can “make up” for the others.
…and of course other things may factor in to the underwriting depending upon the lender or items in the CBR.
Lets assume that:
**You have an average credit file & an average score of ~720.
**You have $1000/mo in bills, and the proposed loan pmt is $674/mo (28k + taxes for 48mos @ 3%) making your debts $1700/mo. Your income is $2800/m0
**The book value of the car is $30k
**The car meets lender criteris for age & mileage limits (less then ~8yrs old, and under ~80k miles – based on age in this example)
$28k x 1.0875 = 30450 / 30000 = 102% LTV
DTI is now 61% (utoh) (pmt $674)
FICO 720
Prolly approved, but iffy, and no flex on terms
If you put down $6k cash:
$28k x 1.0875 = 30450 - 6000 = 24450 = 82% LTV
DTI is now 54% (pmt $541)
Fico 720
Almost guaranteed approval, prolly room to negotiate rate
If you put down $10k cash (you sold ur car for $4k):
$28k x 1.0875 = 30450 - 10k = 20450 = 68% LTV
DTI is now 51% (pmt $453)
Fico 720
Homerun. Name your terms.
For common questions:
I know a bigger DP helps in all areas, but if you are going to be buying from a private seller, how does the lender even know what the price of the car is?
Do you think they just take the KBB or expected MSRP of the vehicle, less your alleged DP and then come up with the loan amt?
For example, if I wanted to buy an STi, it’d cost me around 28k. I think the KBB is 30. Lets say I dropped 6k and told them i wanted a loan for 25k. Would they call bullshit and refuse to offer it?
A lender will generally take the stated price that you say the sale is for. They get the value from NADA (usually) or KBB. I have on occasion seen people need to fax in a statement of sale (signed by seller) confirming price & condition - but rarely.
You gotta remember that (outside of the patriot act compliance) all the lender is doing is lending you money & using the title lien as collateral. So long as the value supports the lien amount (LTV), they don’t care.
If you were applying for a $5k loan on a $195k exotic, then you may have a few questions. But only a few.
Furthermore, I intended on trying a credit union for the loan, but what about all these online things? Regrettably my highest score is Transunion, and it seemed like the others are more highly used.
Good luck trying to find our what CBR the lender will use. Most place “reserve the right” to use any of the three… for a lot of reasons.
I’ve found (personally) that if you have a 650 or better (average amongst the three) you can get loans online. I’ve personally done it 3x now, and guided two others through it also.
Always try YOUR bank of fcu, but I recommend a specific approach:
Go online (lending tree is fine) and get two or three applications. Once you get approvals, negotiate them against one another - not just rate, but terms also. Once you have one that you like the best… take that into your bank/fcu, and ask them to match/beat it.
This works great when buying from dealers, cause the dealers will go to bat to get you a better rate. Worked for me twice, as well as for two friends, though one stuck with his initial CapOne offer, as it was more friendly to private party sales.
** remember to get all of your applications in within a 10-14 day period (two weeks), so that they maybe clustered as one “rate shopping event” or inquiry **
Additionally, someone from CB.com claimed that your lender would take your scores and try and find the best bank that would work with your best score… does this sound right?
No, actually, hell no. That is what DEALERS have “finance officers” for. They will send your app to however many lenders they have to to get you the best terms (or to get an approval at all if your credit is weak).
A first party lender will not. LoL. That just horrible business sense. In 6 years @ M&T I’ve NEVER seen that, and would never EXPECT to. Its silly, quite frankly. But M&T was very conservative, so I’ll say that “anythings possible”. LoL
In regards to the DTI, what bills are calculated to come up with this value? for example, i have 0 revolving debt, however have 10k in school loans.
DTI pmts are based on the CBR and what you state on the application.
Generally online apps will ask Rent amt only. Utils are a estimation from there (we used an average figure based on the locale). Anything else you wish to state is up to you.
Debt account terms are generally taken from CBR items, they will take the min stated on the CBR. If that is an obv wrong nmbr (as often happens), the lender may ask you what the pmt amts are.
In your example, they’ll prolly take the edu loan pmt listed on the CBR, unless it says $1500/mo or something wacky.
Remember, the bank wants to make loans… so unless you’re applying for an insured mtg, you will generally NOT be asked for every monthly pmt. 
Conversly, this is part of the reason people are in so much debt trouble… but thats another discussion.
If you were to try and determine my bills just based off my credit report, it’d only show: ~$100/mo school loan. It doesn’t include any types of services or utilities. I suspect that’s why you are often asked what your rent is. Honestly, I pay $275/mo in rent before utilities… about $500 after. Then including cell and insurance, maybe $700.
Correct. You state rent amt, utils (housing bills, auto ins, etc) are estimated or stated from there.
With just rent, school loans and the purposed auto loan ( $500 ), my DTI would be about: 29%
Inlcuding the maximum bills paid ( cell / insurance ): 40%
If i put 5k down, the LTV would be around: 85% on a car valued at 30k that I would be paying approximately 28k for.
This is all good so far right? Well regrettably my credit score is going to average out to be around 650, with a fair credit file. What do you think?
Based on what You’re saying:
DTI 40%
LTV 85%
$5k cash commitment
650 FICO
…I’d say you have a pretty good app. Fico is a lil low, so try to juice it if you can. If the score were closer to 680+, it’d be a lock.
The only remaining questions would be:
1.)Length of time in current job - this relates to how secure you are.
Example: being w/same company for 3 yrs (lie if you need to) looks alot better then being with 3 companys in 3 yrs.
Of course, if you recently changed jobs they look at the last job. If you were in the same field, and at the last job for 2+ yrs, you’re still okay.
2.)Age & mileage of car. Again, this is very lender dependent.
In the past i’ve gotten approvals from CapOne and off the top of my head they limit used cars to something like:
2005, upto 30k mile
2004, upto 42k miles
2003, upto 60k miles
2002, upto 80k miles
etc… You get the idea
In Closing, a couple of points: I personally recommend that You figure Your DTI with ALL of your bills, but this is solely so that you know you can afford the pmt.
The lender will generally not ask for all of your monthly bills… this lowers your DTI, and makes it easier to lend (making more money for the lender).
Of course, if your application is weak overall, they may comeback and ask for a full financial statement so that they can be sure they are safe in writing the loan.
With any bank loan (again, unsure for FCUs, they are less regulated), the underwriter is responsible for loans that go bad or delinquent. They just have to have reasonable confidence that You CAN pay it.
This brings up my favorite phrase: Just because you can get approved for the loan, does not mean that you can afford it.
The fraud charges you’ll face won’t be fun.