Auto loan: low income, but good credit, lots of savings

[percy]

I'm likely buying a new car soon. I've been with the same credit union for 12 years, and their site gives me 804 for credit rating. But my income (I'm self-employed) has been very low lately, around $25k/year. OTOH I have over 500k in a three-fund portfolio at Vanguard (plus about $6k in VUSXX money market acct).

I would pay cash, but my understanding is that you get better pricing if you finance through the dealer (and can pay it off in full within a year to avoid most of the interest).

The credit union does auto loans, but before I finish applying I wanted to get advice about this. There's a question about "other income," where I guess I could mention that I have significant funds invested, but that's not income (I'm not taking any type of regular withdrawals or distributions, but sometimes I withdraw when I need funds).

Any ideas? I'm not sure if this is a long shot or not, and if there's anything I could do to improve my chances of getting the loan.

[mhalley]

Do you mean actually new or new to you? Debt to income is the main driver of car loans I believe.
Is the money all in retirement accounts or do you have a chuck in taxable?
Take out a very long car loan and pay it down aggressively with your savings. Or Put down a large down payment. Good chance you would only qualify for a subprime loan.
Getting a loan from the credit union won’t help you as they want you to take the loan out with the dealer to get the best price.

[percy]

Do you mean actually new or new to you?

New car, not used.

Is the money all in retirement accounts or do you have a chuck in taxable?

Some of it is in a Roth IRA; some is in a taxable account at Vanguard.

Getting a loan from the credit union won’t help you as they want you to take the loan out with the dealer to get the best price.

Ah, right, I should've mentioned, the reason I'm applying for the loan at the credit union is to hopefully get the dealer to beat or match their financing offer.

[cmr79]

You can ideally either price the vehicle with the dealer before discussing financing (and pay cash) or if you "need" to finance to get a better deal, pay the financing off after the first payment or two. I can't come up with a reason that you should pay 5-7% financing when you have adequate savings and limited cash flow.

[mhalley]

You can generally get a better out the door price if you do financing with the dealer. Then pay off the loan later. If you want to be nice wait for three payments so the dealership keeps its financing incentive. So it might not be worth the work of getting the cu pre approval if you are just going to pay it off right away.
https://getjerry.com/questions/who-is-a ... -off-early

[safari]

I don't understand why you're applying for a car loan from the credit union. You will either pay cash or finance the car through the dealer (if the dealer gives you a larger discount for financing through them).

[avidracer]

does auto payments have the option to pay only principal? Have not bought vehicles recently, but dont recall having such an option when making car payments to contribute entirely towards principal.

[Florida Orange]

Make sure the loan documents say that all early payments will be applied to principal only.

[Doctor Rhythm]

How much do you expect to save on the purchase price by financing with the dealership, net of any loan-related costs/interest you’ll pay? My hot take is that there may not be that much to gain for the effort. May be especially true in your situation if saddled with a high-interest loan.

That said, I’ve never financed a car purchase and am curious how things work in this seller’s market.

[Watty]

Any ideas?

I am retired so the definition of what my "income" actually is on applications for credit cards and home equity lines of credit is pretty fuzzy and the loan application gave little information as to how they define "income".

I just used what my income was on my last tax return or what I expected it to be on my next year's tax return. That included things like retirement account withdrawals, interest, dividends, etc. If I was going to have Roth withdrawals I would have included those too since that was non-taxable income. I would also have included any non-taxable Social Security.

I figured if I was ever questioned about my income my number was very explainable.

I have never had any questions about it and I got the loans for things like credit card sign up bonuses.