Apply For an Auto Loan and Other Loans Simultaneously

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Even with poor credit.

January 27, 2012

If you apply for an auto loan at the same time as another loan, such as a home mortgage, it can have some advantages. However, you should use care if you choose this method of application. It can have negative effects in many cases, and is potentially harmful to your chances of getting either of the loans.

However, those with excellent credit and a reliable history may be able to pull it off. It requires a pattern of handling debt with responsibility and also requires an adequate amount of income to comfortably pay both loans.

The Approval Process

When looking at your credit application if you apply for an auto loan along with a mortgage loan (or frankly, any other kind of loan), the credit bureaus and the potential creditors will examine what they call you debt to income ratio.

This ratio or fraction is figured by comparing the amount to which you would be obligated if you took both loans to the amount of income that you have. They consider not only the payment amounts of the two loans for which you are applying, but also any other debt you have.

The total ratio should be less than 36% of your monthly income being spent on debt of any kind-home mortgage, auto loan, credit card loans, home furnishings, etc.

If you get approved with a debt to income ratio that exceeds 36%, then you will be charged a higher interest rate than the going rate. Lenders see people with high debt to income rations as high risk also-with good reason. They more frequently default on loans.

Multiple Credit Inquiries

Another consideration of applying for multiple loans simultaneously is the affect on your credit score.

Both the lending companies and the lenders understand that when you apply for an auto loan, for example, you will often have multiple credit score and credit report inquiries over a short period of time.

They expect that kind of activity on your credit report, and generally treat multiple inquiries for the same type and general amount of a loan as a single inquiry.

However, if you are making multiple inquiries on multiple loans, it is more likely to have a negative effect. Additionally, it might serve as a warning alert to potential lenders.

One more thing to keep in mind when it comes to "shopping around" as you apply for an auto loan along with a mortgage is that older methods of figuring a FICO score allow only 14 days for a shopping period, while newer versions give you up to 45 days.

Mortgage First

If you need to apply for an auto loan and a mortgage at about the same time, it may be beneficial to shop for the mortgage first, since the mortgage is for such a significant amount.

If you can get that loan, close on it, then apply for the auto loan, you may find that you get better terms on the mortgage loan than you would have otherwise.

Then if the rate on the car loan is slightly higher, it has less of an impact that if you applied for both and got a poor rate on both loans. Since the mortgage is likely for a longer period of time and for a higher amount, it's more important to get a better rate on the mortgage.


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