Last updated 2 months ago
Here are some nifty facts about credit scores you probably didn't know -- and if you did, you should be working here!
Your credit score is a calculation that indicates to a lender how likely you are to become 90 days past due on a debt within the next 24 months. Most people think it simply reflects how likely you are to repay a debt, which is true, but the algorithm more heavily considers monthly payment history than number of loans you’ve successfully paid off.
Your utility bills, rent, cell phone bills, insurance payments, and income are NOT reported to the credit bureaus. However, if any of your bills end up with a collection agency, they WILL be reported.
There are three main credit bureaus that each report three different credit scores. Your scores can vary depending on what information is reported to each of the bureaus. Different lenders report to different bureaus, so don’t just assume a lender is going to decision your loan based on the highest of your three scores.
Your “FICO®” score is actually a blend of the scores from the three bureaus. Some lenders take this score as your credit score, but others may only consider your score from one or more of the bureaus. Amplify and many other Texas lenders use Equifax credit reports to decision loans.
As of fall 2014, your FICO® score no longer takes medical collections into account. Medical collections will still show up on your credit report, but they will no longer affect your FICO® score.
Last updated 3 months ago
When applying for a collateralized loan such as a car loan or mortgage, you may hear the term “LTV” thrown around along with a bunch of other acronyms. But what is LTV?
LTV stands for “Loan-to-Value” and is a ratio expressed as a percentage. It is calculated by dividing the amount you’re borrowing by the value of the collateral being financed. For example, if you’re financing a car for $25,000 but the NADA value is $21,000, your LTV would be 119%.
25,000 divided by 21,000 = 1.19, or 119%
The lower your LTV, the better equity position you, the borrower, are in. In order to not be upside down on your loan, the goal is to owe as little as possible as compared to the value of the collateral. If you’re financing more than 100% LTV on a vehicle, consider purchasing GAP Insurance to protect yourself in the event your car is totaled. If your vehicle is declared a total loss and your LTV is more than 100%, you may owe money out of pocket since your insurance company will only pay out up to 100% of the value.
When considering Auto Loan Financing, Amplify uses the NADA “Clean Trade” value to determine the LTV. Other lenders may use Kelley Blue Book, Edmunds, or other NADA values. Every lender is different, so consider that factor when doing your research.
When financing a Mortgage, lenders will usually consider an appraised value when processing the loan. Depending on the amount you’re borrowing, a lender may require multiple appraisals from different appraisers to determine the value; others may simply use the county’s tax appraisal value. Again, every lender and loan situation is different, so ask your lender what their process is.
Last updated 4 months 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%.
Last updated 4 months 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:
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.
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.
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.
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.
Last updated 5 months 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!