Credit union auto loans are great for first time buyers in need of money for an upcoming vehicle purchase. In fact, credit unions are usually the best source, because they will typically offer rates and terms to first time buyers that can’t be found with other auto lenders.
Unfortunately, not all first time buyers will qualify.
Here are 7 key factors that credit unions consider in their auto loan approval process:
1) Your Credit Rating
There are essentially four credit situations a first time buyer will be in:
Toughest – i) No credit with collections, i.e. medical, cell phone, utility, judgements, tax liens, etc.
Tough – ii) Absolutely zero credit, no good and no bad.
Easier – iii) Limited credit with short history. You might have a small credit card(s) and/or under two years history.
Easy – iv) Long history, but no prior auto loans. You may have had auto loans in the past, but they are older and no longer show on your credit file.
2) Are You A Current Member
It’s not always necessary to be a member prior to applying for a credit union auto loan, but credit unions have been known to stretch a little for their existing members.
The longer you have been a member, the more money you have in your account and your monthly activity, i.e. regular monthly deposits, all may help when making a decision on a border line application.
3) Your Total Down Payment
Many first time buyers are able to get approved for a credit union auto loan with no money down, but the other factors on this list will be looked at more closely.
It will definitely help if you are able to show your commitment to the vehicle with a large down payment. Credit unions look at large down payments as glue. The more money you have invested up front, the more “stuck like glue” you will be to the vehicle and therefore, it will be that much harder for you to walk away from the vehicle in the future.
4) Your Employment Stability
Most credit unions will want to see a minimum of 12 months on the job, with 18 months being preferred. Often times they will consider how long you have been in the same line of work, if you have had multiple jobs over that time period.
5) Your Ability To Repay The Auto Loan
This is usually figured using a Payment To Income (PTI) ratio and a Debt To Income (DTI) ratio. In order to get approved for a credit union auto loan, most first time buyers will have to have a PTI equal to or less than 15-20 percent of your gross monthly income.
Your DTI takes into account all of your monthly bills, including your new auto loan payment, and will typically need to be equal to or less than 40-45 percent of your gross monthly income.
6) The Vehicles Age and Miles
Not all, but many credit union auto loan approvals will be affected by the vehicles age and miles. Most of the time they will be flexible on the age and not quite so restrictive, but many will not finance vehicles with over 100,000 miles.
If vehicles with 100,000 miles or greater are allowed, then they will often times want to finance for shorter terms, which in turn can impact your monthly payments.
7) The Total Amount Financed
The sky is certainly not the limit when it comes credit union auto loans for first time buyers. Most credit unions will cap the total amount financed at somewhere between 8,000 and 12,000 dollars.
Prior credit history will typically be the biggest factor in determining how much a credit union will loan you and this total amount financed range is usually reserved for customers just starting out with a limited credit history.
Not all of the factors above need to be met in order to get approved for a first time buyer auto loan, but the more the better. You can lack in one or more areas, but make up for it in another.
In my opinion, all first time buyers should consider a credit union auto loan as their first source for money when buying a vehicle. They typically offer the best rates and the best terms, while at the same time allowing you to establish a solid history with a lender you may do business with for many years to come.