Credit And Car Loan Applications In Halton

Credit And Car Loan Applications In Halton

Posted on May 21, 2021

Just like there are four Cs for diamonds, there are also four Cs for auto loans. Rather than carat, colour, clarity and cut, we have character, collateral, credit score and capacity. These make up all you need to know about credit and car loan applications in Halton.

Our Halton auto loan team explains.

We talk about affordability a lot in regards to credit and car loan applications, and for good reason. Ever since the crash of 2008, lenders have had a responsibility to ensure every borrower can afford the car loan they are applying for.

The four Cs play a part in that.

Character

Don’t worry, lenders don’t look at your personality traits as part of the application!

Character is more about being financially aware, being good with credit, not overstretching or taking out credit you don’t need and that kind of thing.

If you have never missed a payment, only taken out credit cards you need, are sensible with loans and mortgages, you’ll be fine.

Collateral

Collateral refers to the vehicle you’re buying with your auto loan. It takes into account the LTV, Loan to Value, to assess potential loss should you default on the loan. LTV is the amount of the car’s value you’re borrowing to pay. If the car is $35,000 and you’re borrowing $35,000, the LTV is 100%.

Some auto loan companies will offer 100% LTV or more if your credit score is high enough. Some lenders will offer less.

As the lender would repossess the car if you defaulted, they need to assess how much they would potentially lose. It’s all about limiting losses should you default. The higher the LTV, the higher the risk of the lender losing money.

Credit score

Credit scores we all know. It’s made up of your credit history and is a reflection of how good you are with credit. In Canada, it’s Equifax and TransUnion that manages credit histories. They will take every piece of financial information made available about you and create your credit score.

The higher your credit score, the more sensible you are seen to be with money. That means potentially lower risk for lenders, resulting in lower interest rates.

The opposite is also true.

Capacity

Capacity is an important aspect of lending and goes towards ensuring affordability. Everyone wants you to be able to afford the loan and to comfortably be able to make repayments.

It’s in nobody’s interest to lend you money that will get you into trouble, which is where capacity comes in.

It’s an assessment of your current debt level, your income, your disposable income, the potential auto loan payment and other calculations. The idea is to see how much you have left over each month after taxes and paying everything. Then using only a portion of that as a car loan payment.

That way, you have enough wiggle room on a month to month basis to be able to comfortably pay the auto loan even if life throws a curveball your way.

Those are the four Cs of credit and car loan applications!

Contact Unique Chrysler for help, advice and competitive Halton car finance and leasing.

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