This week’s story is a perfect example of why a great credit score doesn't guarantee approval.
Sometimes, hidden landmines in a borrower's finances mean their repayment capacity is much lower on paper than it is in reality.
Here is how we helped a strong borrower navigate a tricky servicing failure.
Customer of the Week
This week, a trusted dealership partner in Penrith sent a customer our way who was looking to buy a 1997 Toyota Hilux for the family.
On paper, this applicant looked like an easy match for plenty of lenders:
- Credit Score: 794 (Excellent).
- Employment: Full-time.
- Asset Position: Homeowner.
Two Major Problems
A secured car loan requires two equally important elements to be satisfied:
- The customer must qualify for the finance.
- The car must be valid security for the lender.
In this case, we failed on both counts. The team had their work cut out for them.
The Challenges
Vehicle Type
Most car loans are "secured" because it is the cheaper option.
However, when financing a near 30-year-old vehicle bordering on vintage, banks won't use it as security.
We had to use an unsecured personal loan as a fallback option.
Repayment Capacity
A greater challenge was proving he could comfortably afford the repayments.
The customer had a handful of other loans and credit facilities.
Depending on the lender, this can lead to massive variations in how your living expenses are calculated.
In this case, the numbers just weren’t stacking up.
The Winning Strategy
To save the deal, we had to get creative and restructure the application entirely.
1. The Co-Borrower Pivot
A few weeks ago, we talked about avoiding joint applications when they are not needed.
Well, in this case, it was exactly what we needed.
By pivoting to a joint application, we gained a large boost in repayment capacity.
We were able to include his partner’s full income to support the debt, rather than just using it to offset household bills.
2. A Buy Now, Pay Later Landmine
Even with the combined income, it was still tight.
We scrutinised their finances looking for anything that could be closed down to get the deal over the line.
One thing that caught our eye was an open Afterpay account.
Even if you pay off your balance, a lender may treat the total account limit as a recurring monthly expense, which penalises you unnecessarily.
We had the customer close the Afterpay account, instantly freeing up sufficient borrowing capacity to satisfy the lender.
The Result
Under the revised structure, and with a reduced debt level, the application was approved!
Given the customer’s strong credit profile, we secured an interest rate in the low teens, which is an outstanding result for an unsecured personal loan on a 30-year-old ute.
Bonus: The Home Loan
After looking at their finances closely, it was clear they were also likely paying too much on their mortgage.
Our sister company, Gusto Home Loans, is now on the case to help further improve the household budget by refinancing them to a sharper rate.
The Takeaway
Loan products with an ongoing credit limit can be a hidden anchor when applying for finance.
Things like credit cards and "Buy Now, Pay Later" accounts are often assessed based on their maximum limit, not what you currently owe.
This will drastically reduce your borrowing power.
In this case, it would have prevented a loan approval entirely if our expert team hadn't spotted it.
Serviceability Isn't What it Seems
Ever wondered why a lender tells you that you cannot afford repayments when you know you easily can?
The calculation they do is often very different from what you see in your own household budget.
This is because they have to account for a number of “what ifs?” (like interest rate buffers and credit limits).
Learn all about the numbers that change without you knowing, and what you can do about it, in our latest guide.
Read the full article here