Continued from part 1

Kevin did is due diligence by the bank and ran the credit score numbers for both Mark and Shirley.  He discovered that Mark’s FICO score was 720 (very good) and Shirley’s FICO score was 685 (still good but damaged to some degree).

Kevin said that there were many factors involved when approving a loan and that her FICO score may not affect the overall status of their loan application.

He explained to them how factors come into play on a loan application from many different sources.  Kevin explained that the fact they were both employed for over 15 years and had never defaulted on a mortgage payment, car loan payment, or lease payment in those 15 years was a a positive point of fact on their record.

Both Mark and Shirley have steady jobs and they have both been employed for over a decade.  Mark has been an aerospace engineer for 17 years and Shirley has been a secretary or an big company for over a dozen years.  Both of their jobs are in strong sectors and their seniority levels and work history have been stellar.

Furthermore, Mark and Shirley have a very low personal inflation rate which is also taken into account when applying for a loan.  Because they don’t have children living with them anymore their personal inflation rate is lower than younger families, and the banks look at this when deciding whether or not to approve a loan.

So to sum up, Mark and Shirley make over $100,000 a year in gross income from their employers combined and their take-home money on that yearly gross income is $65,000.  They do have a mortgage on their home of $170,000 and their payments on that home are just under $1000 a month.  The equity they have in their home is over $450,000 and this is very encouraging as far as the bank sees it, because the bank sees this equity as possible collateral.

This is the rub – Mark and Shirley are not willing to put their home-equity down as collateral (security) for their vehicle loan.  They wanted to make a down payment of $10,000 cash and then make monthly payments every month towards the principal and interest on the loan.

For this scenario, the only collateral that they were willing to provide to the bank, for security, was the value of the brand-new vehicle they would be driving (in this case a brand-new 2008 BMW SUV).

This did not mean that the bank would not give them the loan, but the bank would not make a rash or quick decision on the loan based on their income and their spending and credit history.  They would wait a day or two so that they could gather reliable data on Mark and Shirley before making a decision on their loan application.

“Kevin the loan officer” did ask Mark and Shirley if they had thought about using dealer financing and Mark explained to Kevin what their decision was – that they believed they could get a better APR (lower APR) with their local branch then with a dealer.  Kevin agreed to this and nodded his head to show his understanding of Mark’s theory.

Kevin took down all of Mark’s and Shirley’s information and told them that they could make an appointment to see him in three business days.  Kevin would have all of the information he needed to make a decision on their loan application.

So it was back home for Mark and Shirley while their local Bakersfield branch made a decision on their loan application.

They were called two days later and Kevin explained that they should come into the bank for signing papers and getting the loan under way.

Mark and Shirley were very excited to know that it looked like they were going to get the loan they needed for their new BMW SUV.  Unfortunately when they got to the bank the loan officer (Kevin) had one of his superiors in the office with them. (As it turned out this was the bank manager).  He quickly cut to the chase and tried to convince Mark and Shirley to use their home-equity as collateral on their car loan.  Mark and Shirley both stuck to their guns and declined.

The bank manager (they soon realized his position) said that they could not provide them their funds for their vehicle purchase and that his bank would only approve the loan if they provided their home-equity as collateral.  As you can see they were in a stalemate position and negotiating was pretty much over. Mark nodded to his wife Shirley as if to say, “let’s get out of here.”

And so they did.

In a huff of emotion Mark steered his vehicle off of the normal route which leads them to Southern Bakersfield (home) and turned the other way towards the dealership where their BMW sat on the lot.  Mark walked briskly into the dealership’s main showroom area and asked for the car salesman he had been talking to two weeks earlier.  The car salesman came out of the back office (or lunchroom it looked like as Kevin’s mouth was full), and greeted Mark and Shirley with hearty handshakes and a wide smile.

Mark explained that he could not get conventional auto financing from his major bank and that he was going to change all of his accounts to a new bank including his mortgage and retirement savings, and that he would accept the dealer financing at the higher percentage rate.

The car salesman at the dealership soon told Mark and Shirley that the LIBOR (the index the BMW dealership was using for it’s rate index) had dropped and they were lowering their lending rate by half a point.

This was good news because now they’re dealer financing would be 6.5% instead of 7% as they were told by the dealership’s financing department last visit. Mark went back to the dealership’s finance office and began filling out forms. He gave them a check for the down-payment on the SUV, and left to go home with Shirley.

On the way home in the car they both discussed how they felt they had made a decision based on emotion instead of going to yet another conventional bank in Bakersfield beside their branch.

They both agreed that their decision was quite hasty and made under the wrong circumstances. However, they both were happy that all their running around and head scratching was over. They had their SUV that they wanted (the vehicle of their dreams) and with an APR of 6.5%. This APR was the true APR – so more accurately their EAR (effective annual rate) was 6.5%.

Now as part of the California Loan Find tradition we’ll do the math on this auto loan:

• Principal Amount of Auto Loan = $79,000
• Total EAR after APR and fees =  6.5%
• Length of Term = 5 years
• Payment Periods = every 14 days (bi-weekly)

Using the CLF calculator (to the right of this article) we come up with these results:

Auto Loan Calculation Results:

Total Amount to be payed: $91,936.15
Total amount of interest and fees on auto loan: $12,936.15
Auto Loan Bi-weekly Payments: $705.26