As you order your next Cadillac, you may see enticing offers “for well-qualified buyers.” Let’s take a deeper look at the factors that are considered in these types of lending decisions.
What’s a well-qualified buyer?
Simply put, a well-qualified buyer is a person who meets the lender’s credit criteria for specific offers. Typically, lenders consider the following categories when determining qualifications:
Credit score: Although scoring models from credit bureaus, finance companies and FICO® will vary, this will generally include excellent credit ratings commonly referred to as prime or super prime ratings.
Debt to income (DTI) ratio: Lenders are looking for a well-balanced DTI. To calculate, divide your monthly debt payments by your gross monthly income. You’ll want this number to be 36% or lower, but each creditor looks at this on a case-by-case basis.
Payment to income (PTI) ratio: This is a calculation that shows lenders how much of your monthly income is used to make your monthly vehicle payment. A ratio that’s less than 20% of your income is typically favorable. Lenders may factor in other variables, but it’s a best practice to keep this number low.