If you're in the market for a new car, having a new mortgage on your credit report may hinder your chances of getting a loan or obtaining competitive interest rates. While each person's situation depends on multiple factors, you can generally get a car loan if you have good credit, while those with poor credit face tougher odds.
Lenders
Whether a lender wants to give you a loan, be it for a car or any other purpose, is up to the lender. Lenders are under no legal obligation to provide you a car loan. While lenders cannot discriminate against you based on factors such as your race, marital status or religion, they are allowed to use your financial information as a basis for evaluating your loan application. If you've recently bought a home, the lender has the right to use this information when it determines your car loan eligibility.
Debt Ratio
Whenever you apply for a new loan, creditors typically look at your debt-to-income ratio, or DTI. This percentage represents how much of your gross monthly income you spend on debts. For example, if you've just taken out a mortgage, have an income of $5,000 per month and a debt obligation of $2,000 per month, your DTI is 40 percent. According to Lending Tree, your debt-to-income ratio should be no higher than about 36 percent. If yours is higher than that, lenders are less likely to give you a loan.
Credit Score
Your credit score is a number that represents your past history with credit. The higher the score, the better a borrower you are and the more likely you'll get a car loan. Part of your score is made up of both the number of new loans you have and the average length of your loan. Getting a new mortgage may lower your credit score, though not nearly as much as making a late payment or settling a debt.
Other Factors
If you've recently bought a home, you may want to wait a few months before getting a new loan. Lenders may not be willing to offer you competitive rates if they see you taking on a lot of debt all at once. Proving that you can handle your current debt obligations will make it much easier to get a favorable car loan.
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