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    Applying for Credit: What is DTI?

    Last updated 13 hours ago

    DTI stands for “Debt-to-income,” and it is one of the key items a lender reviews when underwriting a loan request.  DTI is also known as the debt ratio and is usually expressed as a percentage. It indicates to a lender how much of your total income is obligated to the debts on your credit report. In other words, your DTI tells a lender whether or not you can afford the loan.

    DTI is calculated by dividing your total monthly debt payments by your monthly gross income (before taxes). Debts to include are housing payments (mortgage or rent), car payments, student loans, alimony, maintenance, child support, credit card minimum payments, and line-of-credit minimum payments. The calculation does not typically include utility bills, insurance payments, and day-to-day expenses like gas and groceries.

    So for example, if your DTI is 40%, that means that 40% of your income is obligated to debts on your credit report such as housing, car payments, and other loans.

    A healthy DTI for someone with monthly rent or mortgage payments does not exceed 45%.

    Financing a Vehicle for your Business

    Last updated 18 days ago

    When you own a business and you need to purchase an auto, you have a couple of different options.  You can purchase the auto with funds from your business or you can finance it.

    Consider the choice carefully.  If you have the capital to absorb the cost of the auto without significantly affecting your finances, that can be a good option to avoid interest charges and a monthly payment.

    If your business has a line of credit with a financial institution then you could use it to purchase the vehicle.  Hopefully you have secured a good interest rate if that is the route you choose.

    Interest rates for auto loans are typically lower than unsecured or revolving credit, so you may want to instead consider financing an auto loan under your business name.  Depending on the amount, you may be able to be approved based on your personal credit rating.  If that is possible then the process mirrors a normal auto loan application.

    Many financial institutions have a business lending department for such requests.  It can be a way to strengthen your relationship with an existing institution.  It can also be a way of establishing a relationship.

    So what is the financial institution going to look at when they review this type or loan application? 

    That really depends on their internal guidelines, but here are some items that will likely come into play:

    1. The income or cash flow of the business.  This is normally expressed through the tax returns that your business has filed.  It is important that you are reporting your true income on the tax returns because most institutions will only use what can be verified through the tax returns, and in many scenarios they will require two or more years of filed returns.
    2. The value of the auto vs. the amount you request.  This is often referred to as the Loan-To-Value ratio or LTV.  When reviewing the request it is not unusual for an approval to be limited to 100% or less of the value of the auto.  The reason for this is because the vehicle will likely experience more wear and tear than a standard consumer auto.  Likewise it may have after-market add-ons which are necessary for the business but also significantly impact the value of that auto moving forward. 
    3. Your relationship with the financial institution.  While this certainly has less impact than the first two, it may be an important deciding factor if the request is marginal.  If the business has an active account with the financial institution then they likely will be able to understand on a much deeper level the profitability and cash flow of the business.  This can be a great advantage to you when submitting a business auto request.
    4. The type of vehicle you’re looking to purchase.  Amplify can finance up to 80% of the value of the vehicle if it is truly a commercial-purpose vehicle, such as a bus, cargo van, or semi-truck. If the vehicle is purchased at a normal car dealership and is a consumer-purpose vehicle (purchased under the business name), Amplify can finance up to 100% of the value. Every institution is different, so check with your lender.

    It is a good idea to contact your tax accountant to determine the advantages/disadvantages to titling the auto under the business name.  This is an important purchase, and you will be helping yourself tremendously by doing the appropriate amount of research so that you can make a sound decision for your business needs.

    Car Buying Decisions: Do I Need GAP Insurance?

    Last updated 1 month ago

    What is GAP?

    Guaranteed Asset Protection, sometimes called GAP Insurance, is a protection package that covers the difference between the actual car value and your loan balance in the event that your vehicle is declared a total loss by your insurance provider.

    In other words, if your brand new car is declared a “total loss” in the first year of ownership and you owe more than your insurance provider is willing to cover for the loss, your GAP policy will pay off the remaining balance (up to a certain amount; check with your GAP provider for details).

    How Does GAP Work?

    Let’s take the above example and assume that 9 months into ownership, the vehicle is stolen and not recovered. Your insurance company would likely declare the vehicle a total loss. After some number crunching on their end, they will decide what the car’s “Actual Value” is, and they will send a check to your lienholder (the lender financing the vehicle) for that amount. If that amount isn’t enough to pay off your loan, you will owe the lender the remaining balance.

    For example, if your loan balance is $18,000, but your car’s actual value is $14,000 (the amount your insurance provider will cover), you will owe the lender $4,000 in order to satisfy the loan.

    Do I Need GAP?

    It depends! Ultimately it is your decision, but considering these factors beforehand may help you assess whether or not it’s right for your situation:

    • Did you put money down when you bought it? Whether you bought a new or used vehicle, having a down payment helps close the “gap” between the actual value and what you owe. Consider these two scenarios (for illustrative purposes only) – the “gap” is much more severe and lasts longer in the scenario with no down payment.

    • Did you opt for the longer loan term (and smaller monthly payment)? It may be tempting to opt for the lowest monthly payment, but doing so typically means your loan term is longer. Stretching your loan out over more than the typical 5 years increases the “gap” between loan balance and vehicle value even more.
    • Did you borrow more than the purchase price? Whether it was the extra features, add-ons, or even negative equity from your previous car, rolling extra money into your car loan can have a dramatic effect on the “gap” between your loan balance and vehicle value. Consider shopping several GAP options that offer the right amount of coverage for your situation.
    • Have you refinanced your loan since you bought the vehicle? GAP policies follow the original loan policy, so if you’ve refinanced your vehicle since then and are still upside down, purchasing a new GAP policy may be wise.
    • Did you roll tax, title, license, and other fees into your loan? Many car buyers opt to roll their back-end fees into the loan balance, but doing this increases the "gap" between the loan balance and the vehicle value early on. If you do this, consider also rolling in a Guaranteed Asset Protection package from Amplify.

    Where Do I Buy GAP?

    GAP is typically purchased at the time you finance the vehicle, but you can purchase it at any time after the fact. You can buy it through your lender, the car dealership, or even your car insurance provider, all of whom offer different levels of coverage for varying price ranges.

    Amplify Credit Union’s Guaranteed Asset Protection (GAP) is a one-time fee of $350 and covers “gaps” up to $7,500 for the life of the loan. Visit goamplify.com for more information about Amplify, or check out all of our Auto Loan Protection Packages!

    Inheritability of Vehicles in Texas

    Last updated 1 month ago

    by Jamie Lovell

    Amplify Credit Union

    We all have a love affair (or maybe a love-hate relationship) with our cars. Given how much time we spend in them between errands, commutes, and road trips, it’s no wonder we grow so fond of them.

    Whether an auto is a classic, special edition, or even a plain vanilla car, you may be surprised to learn how much the vehicle means to family and loved ones following the death of the vehicle’s owner.

    So what happens to a car in the state of Texas when the owner passes away? Well, it depends.

    Are loan payments still being made on the vehicle? If there is a loan secured by the car, find out what the lender’s rules are in these situations. Because Texas is a community property state, a surviving spouse may be held responsible for the debt, regardless of whether the spouse is listed on the vehicle title or even on the car loan. Regardless of what is or isn’t specified in the will, the state of Texas will only transfer vehicle ownership to the heir or heirs of an estate once the loan has been paid off and satisfied.

    *Bonus tip – If the vehicle owner opted for Credit Life insurance coverage when they signed the loan papers, it will likely pay off or cancel any remaining balance on the loan, making the transfer easy. Check with the lender for details.

    How is ownership transferred once the title is owned free and clear?

    In Texas, the DMV uses form VTR-262 Affidavit of Heirship. Supporting documents differ depending on whether or not the estate is probated. Check with the TXDMV website for a list of needed documents.

    Ultimately, seeking advice on estate planning can help mitigate potential complexities that surviving family members or heirs may be faced with, and it will allow you to clearly define who you want to inherit your beloved car.

    Cash-Out Vehicle Refinances

    Last updated 1 month ago

    by Tony Kountoupis

    Amplify Credit Union

    Have you ever thought to yourself “How can I combine my monthly payments into one loan?”  Most of us have, but when we ponder this we often come to the same conclusions:

    • I could do a balance transfer to a new credit card with a 0% for 6-12 months depending on the offer.  This is a great option but it’s a temporary fix because once the 0% goes away the interest rate will go up significantly. Also, most credit cards charge a balance transfer fee!
    • I could go to my financial institution and ask for an unsecured loan so that I can make just one payment instead of several.  Hopefully the rate on the consolidation loan will be lower than your current interest rate, but it can still affect your credit rating to carry a large amount of unsecured debt.
    • I could look into a Home Equity loan.  This product will offer a lower rate but this only works if you’re a homeowner and you have equity available in your homestead.  And while you will likely get a better rate on a Home Equity loan, that process can be time consuming and sometimes requires you to pay closing costs.

    What many people don’t realize is that some financial institutions will allow you to use the equity in your car.  This is a great option for many borrowers because there is almost always a lower interest rate offered on an auto loan vs. a personal loan or credit card. 

    It doesn’t have to be for debt consolidation either.  Maybe you realize that you have a large expense or purchase that would normally prompt you to apply for an unsecured loan or open a new credit card.  I have personally known people who have used the equity in their autos to pay for unexpected medical and dental bills, home repair, auto repair, furniture purchases, or even vacation funds.

    You can look up the blue book value online at the website for the NADA price guide www.nada.com .  This will give you an idea of the available equity in your auto. 

    You’ll want to make sure that your financial institution will allow this type of request and how much equity they will allow you to take out.  Assuming they have this product available then you just need to go through the normal auto loan application process.  The other things to keep in mind is that most auto loans require that you carry full coverage insurance and if ownership is changing on the title then there can be additional tax, title, and license so don’t be afraid to ask questions when inquiring about this process.

    So when you’re in need of funds and weighing out your options, consider borrowing against the auto that you already own; or refinancing your current auto loan for some additional cash out.  It’s a great way to borrow at a lower rate and save on finance charges.

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