Two of the biggest loans you will ever take in your lifetime are loans to finance the purchase of your car and loan to finance the purchase of your home.
In this short guide, you will discover how these two differ from each other.
Read on to find out more…
The Credit Report Scrutiny
Before a mortgage lender can approve your mortgage loan, he will critically take a look at your three major credit reports. They are the reports from TransUnion, Equifax, and Experian. The aim of the mortgage lender is to identify cautionary signs that can mark you as being highly likely to default on your monthly mortgage payments.
Common signs they watch out for are; past bankruptcies, high credit card debt or late payments. In contrast, lenders for an auto will only look at one your credit reports when you apply for an auto loan. Thus, it may be possible that your auto financing will be approved with ease.
Your Bankruptcy Filing
If your credit reports have a lot of credit dings, it might be very difficult for you to be approved for a mortgage loan.
For example, a chapter 13 bankruptcy will remain on your credit report for seven years, while a chapter 7 bankruptcy will remain on your credit report for 10 years. If you’ve filed for different kinds of bankruptcies and they are still fresh in your credit report, most mortgage lenders will not approve your mortgage loan.
Lest I forget, a foreclosure will also remain on your credit report for seven years. But most auto lenders are willing to overlook these financial setbacks probably because the money they are lending out is comparatively lesser than the money being lent out by mortgage lenders. If you have this sort of credit in your credit report, applying for an auto loan might come with stricter terms and conditions, for example, higher interest rates. Read more.
Are You Willing To Tolerate The Risk?
Since auto dealers want to sell more cars, most of them don’t mind taking on additional risks when they lend to customers. As a matter of fact, they are more interested in lending to customers whose credit is far less than perfect.
Again, it is important for you to bear in mind that the terms and conditions will definitely be stricter than those for a person with a perfect credit. While auto lenders are willing to take more risks than mortgage lenders, they charge riskier customers higher rates to protect themselves financially.
Your Proof of Capability
In this regard, there is no difference between mortgage lenders and auto lenders.
You will need paperwork to prove that you are capable of repaying your loan on time. Regardless of the type of loan you are applying for, expect to come up with a lot of paperwork. For example, both mortgage and auto lenders might require you to provide your bank account statements, tax returns, and your most recent pay stubs.
In addition, when you apply for an auto loan, you have to provide a proof of auto insurance or if you are applying for a mortgage, you have to provide proof of your homeowner’s insurance. The fact remains that before you can be verified to take a loan, you must provide the vital documents. More details in site: http://www.mortgagebroker247.com.au/homeloans/