Can I put an auto loan under my business name?

Having an auto loan in your business name is dependent on two factors:

  1. Company credit bureau and credit history
  2. Vehicle of choice

Typically, having an auto loan in your business name requires the business to have sufficient credit history and the owner must have sufficient credit history. Therefore, some banks now offer the loan to be done in the client's name and to have the payments come out of a business account (for tax purposes). If you are interested in this setup, let our team at Comox Valley Auto Loans know at the beginning of the financing process so we can speak with the banks about your financing.

What are the requirements to getting approved for an auto loan?

A common question we get asked is what clients need to have in order to secure an auto loan. Here is a quick list of what is needed:

  1. Proof of current employment
  2. A valid driver's license
  3. A valid bank account (for pre-authorized payments)
  4. Proof of residence

Proof of current employment: There are some differences based on the type of employment that will determine what the bank will request to verify. Here are some examples:

  1. Hourly paid employee (taxed): Requires 2 current paystubs dated in the last 60 days.
  2. Self-employed (pays own taxes): Requires previous year's T1 general and Notice of Assessments, as well as 3 months of bank statements.
  3. Commission employee: Previous year's T1 general and Notice of Assessments, as well as a commission's breakdown.

What is a repossession?

Many of us go through hard times during the course of our lives. Repossessions are nothing to be ashamed of and deserve the respect and understanding of others.

Here are the two types of repossessions:

Voluntary repossession: The client voluntarily gives the vehicle back to the bank, however remains legally responsible for the loan.

Involuntary repossession: The bank hires a bailiff to locate the vehicle to procure from the client due to lack of payment, who is still responsible for the loan. The cost associated with finding the vehicle will be added the customers balance owing.

If you have had a repossession in the past, you are still eligible for vehicle financing. Our team at Comox Valley Auto Loans works with amazing finance companies that specialize in giving clients another chance at rebuilding their credit. It is worth noting that the interest rates will be higher for these auto loans as the risk associated on the loan is higher due to the previous repossession.

Will I need a co-signer?

A co-signor provides stability for the loan where the primary applicant may have had some previous credit issues. Co signor fall under 2 categories:

  1. Bank requested co-signer: a bank may requires a co-signer be added to the loan to bring credit strength.
  2. Customer requested: if the bank is willing to lend money to a client at a higher interest rate, the client may not want to agree to the interest rate provided by the bank. The client can add a co-signer to the auto loan to see if the bank will reduce the interest rate based on the strength of the co-signer.

If a co-signer is available, our team always recommends having them added to the loan as it bring additional strength to the auto loan. In most cases, it will also reduce the interest rate.

What is negative equity?

Negative equity is the amount owed on a vehicle that is more than the vehicle's worth.

Here is an example of negative equity:

  • Purchase price of the vehicle: $20,000.00
  • Vehicle value: $20,000.00
  • Taxes: $2,500.00
  • Bank fees: $1,000.00
  • Total amount financed: $23,500.00

Therefore, this individual has financed $23,500.00 with a vehicle worth $20,000.00.

As an example, let's say the monthly payment is $300.00 a month. The $300.00 monthly payment will have $200 of that amount to go towards interest and $100 towards the principle balance. So after one year, $1,200.00 would have been put towards the principle bringing the balance owing to $22,300.00. In that first year, the value of the vehicle also depreciates depending on usage and the condition of the vehicle. On average, a vehicle will depreciate a few thousand dollars in value in the first year. Therefore, here is the new valance of the loan and vehicle worth after one year:

  • New amount financed after one year: $22,300.00
  • New vehicle value after one year: $18,000.00
  • Current negative equity: $4,300.00

Don't be alarmed, 90% of all vehicles have negative equity attached to them. This occurs because the majority of individuals finance the funds to purchase a vehicle at an interest rate higher than 0%.

Therefore, banks will always take a portion of the vehicle payment and put it towards the interest. The higher the interest rate, the more from each payment goes towards interest. The great news is that Comox Valley Auto Loans works with multiple manufacturers that help us avoid most negative equity by offering manufacturer rebates.

What is a non-prime car loan interest rate?

Non-prime auto loans have 3 categories of interest rates:

  • 7.99% - 14.5% - Gold (24 months)
  • 14.5% - 23.5% - Silver (12 months)
  • 23.5% - 29.9% - Bronze (12 months)

With our team at Comox Valley Auto Loan's help and expertise, we assist clients to secure loans from higher interest rates into lower interest rate loans over time. As noted above, each non-prime interest rate category has a timeline attached. Those timelines indicate the rough estimated amount of time a client can expect to be paying that interest rate, with the stipulation of following our credit rebuilding process. This process cannot be guaranteed, as it involves many moving pieces such as the bank criteria's, available vehicle inventory and client involvement.

What is a non-prime auto loan?

The banks categorizes clients as prime or non-prime based on a number of different categories. Having a non-prime loan simply means the loan does not fit into one of the bank's prime categories, therefore does not qualify as a prime loan. Banks often change these loan parameters based on the performance of their auto loan portfolio. So what does this mean? Put simply, this could mean that a client may be a prime customer one month and the next month the bank criteria's may change and be re-classified as non-prime. Non-prime simply means interest rates over 6.99%. However, in our experience we have been able to get client's an interest rate as low as 4.99%. At Comox Valley Auto Loans, we educate our clients on the best rates and how to secure these rates.

How do I read my credit report?

Reviewing a credit report the first time may seem confusing, however we have some simple tips and guidelines to help you understand credit bureaus in no time.

Revolving Credit: Revolving trade lines are credit cards and lines of credit. the Revolving trade line payment adjusts themselves up and down based off of the amount of money you owe to that particular creditor. Installment Loans: Installment loans have a set payment arrangement each month. These contractual agreements can have monthly, semi-monthly, bi-weekly, or weekly payment.

Both revolving and installment loans will have a corresponding numerical number attached to that type of credit. These numbers classify the type of current rating for that specific trade line.

These are the 9 different classifications (based on an installment loan for example):

  • I0 - The credit is too new to rate (approved but not used)
  • I1 - The loan is being paid as agreed. Pays within 30 days of agreed upon date (these are good)
  • I2 - The loan is being paid more than 30 days from payment due date, but not more than 60 days (or not more than two payments past due).
  • I3 - The loan is being paid more than 60 days from payment due date, but not more than 90 days (or not more than three payments past due).
  • I4 - The loan is being paid more than than 90 days from payment due date, but not more than 120 days (or four payments past due).
  • I5 - Account is at least 120 days overdue.
  • I6 - This rating does not exist.
  • I7 - Making regular payments through a special arrangement to settle the debts. This rating will be shown during credit counselling or other trustee regulated debt repayments.
  • I8 - Repossession (voluntary or involuntary return of merchandise).
  • I9 - Bad debt, placed for collection; moved without giving a new address or bankruptcy.

What are the components of a credit score?

Payment History

Making payments on time is the largest components of how credit is evaluated. Payments reported as past due at the end of each month that are over 30 days since the payment due date are reported to the credit bureau. These reported payments stay on the individual's credit bureau for 7 years.

There are four categories of past due payments:

  • 30 days past due
  • 60 days past due
  • 90 days past due
  • 120 days past due

Having a single reporting of 30 days past due on your credit bureau will not damage or reduce your score to a large degree. However, continuously having late reported payments over a period of time will in fact reduce a credit score significantly.

Balance of Trade Lines

The balance of an individual's trade lines indicate to the bank an overview of the financial situation based on credit utilization. What does this mean? Put simply, this means if you have 3 credit cards with an amount owing that is the same as your high credit, the credit utilization is high. Keeping credit utilization under 30% will increase an individual's credit score each month. We recommend keeping small balances on a credit card while not paying off the full balance owed. The main focus of credit utilization is with revolving credit lines such as credit cards, lines of credit, etc.

Length of Credit

The length of an individual's credit shows the ability to repay creditor over a longer period of time. A long credit history and trade line will increase an individual's credit score month-to-month. Banks are most comfortable lending money to those that has a few trade lines open for roughly 3-4 years rather than 10 trade lines that have been open for 6 months. However, being new to the world of credit and finance doesn't negatively affect your credit score. New credit typically starts with a higher credit score because the only history for that credit that is being reported is positive. A new credit score typically falls in the 650-725 rage for credit less than a year old.

Types of Credit

Having different types of credit is generally a good idea to increasing credit scores. We encouraging individuals to aim for a diverse credit bureau. Different types of credit include; multiple revolving trade lines (credit cards, lines of credit and installment loans (auto loans, personal loans). Installment loans show the bank the ability to repay the creditor each month on the arranged date. Installment loans are stronger than revolving loans as installment loans have a set amount payment delivered each month on time to the banks.

My own bank won't lend me money, can I still get approved?

The answer is absolutely YES! Our team at Comox Valley Auto Loans work with more lenders than any other auto provider on Vancouver Island. That's why we can almost guarantee you an approval! Your own bank may not have approved you for a loan for a number of different of reasons. Some banks do not have an auto finance department, therefore lending money for auto loans isn't an option. Our expert team of credit specialists will give you our one-on-one credit consultation.