Ford removes minimum credit score for 84-month auto loans

Think carefully before committing to a seven-year car loan.

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For most of us, buying a car means getting a loan, whether it’s from a bank, a credit union, or a carmaker’s captive finance company. Whether or not we are approved for this loan is determined by our credit rating with one exception. Ford has removed the minimum credit score requirement for its 84-month auto loans, according to a report released by CarsDirect on Friday.

This can be considered problematic for several reasons. Typically, a minimum FICO score is used as an indicator, along with other factors such as the debt-to-income ratio (more on this later), to determine a buyer’s ability to repay the loan. Removing this score makes it easier to buy a new car, but it can also allow people to take out loans at higher interest rates, which ties that customer to a long repayment plan for an asset that is very likely to depreciate faster than them. pay it.

It is possible that this change in lending practices could be interpreted as somewhat predatory, especially since the change does not apply to any of the company’s other loan products. We reached out to Ford Credit reps for feedback, and they said this:

“Our proprietary scoring models already do a great job of assessing the likelihood that an applicant will be able to pay. FICO is one of the elements of our models. Eliminating the separate FICO requirement opens up the funding prospect to more clients who would be eligible for 84 – months funding within our models. FICO qualifications are sometimes included as part of marketing programs. “

So, according to this statement, Ford has no intention of granting 84-month loans willy-nilly, which is fine. But is an 84 month car loan the right move for you? The answer is probably no. ”Ford Credit’s interest rates on seven-year loans are relatively high, around 5.9%, which means if you bought it yourself a new base Mustang GT for $ 37,480 (destination included) and you funded it all – no down payment, no trade – you’d end up paying about $ 45,192 in total at the end of the seven-year loan period. That’s almost $ 8,000 in interest alone.

Another disadvantage of an 84 month loan is the simple fact that the term of your loan is longer than the collateral for your new car. This means that if something is wrong after the basic three year / 36,000 mile bumper-to-bumper warranty, you need to fix it while you’re still making payments. If your income level requires you to need such a long loan to pay your monthly car payment, this could be a pretty tough pill to swallow.

If you are able to get a lower interest rate on a long term loan then the proposition becomes a bit more attractive, mainly because the lower monthly payment offered by a long term loan equals a debt to income ratio. lower (that is, you spend less of your monthly income on debt repayments). It sounds good to other lenders, but it’s up to you to decide if it outweighs the potential drawbacks.

A better option for many people would be to rent. Lease payments are usually lower than they would be if you bought the car because you are paying primarily for depreciation of the vehicle rather than for the vehicle itself. Leasing is also a good option if you want to buy a new car more often. If leasing doesn’t work, you may also want to consider car subscription services.

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