Tractor Financing 101
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Kandy has been taking Kubota Credit apps for 32 years!
Most of us have some type of debt. According to Nerdwallet 2018, the average American household is $ 135,768 in debt. This figure comes from mortgages, student debt, medical debt, car loan, and credit cards. How we, as individuals, handle our personal debt is a key element to our financial health. Strong financial health is the backbone of lawn mower or tractor financing.
The majority of the equipment we sell is financed. People often ask me “What are the variables finance companies look at when financing equipment?” KCC ( Kubota Credit Corp) and Sheffield go through the three main credit bureaus; Experian, TransUnion, and Equifax. Different companies have their own guidelines/criteria to follow when deciding whether or not an individual’s loan for equipment can be approved. Minimum age, payment history, debt to income, credit score and bankruptcy are the factors that I’ve seen come into play many times. None of these are permanent obstacles and they can all be overcome with some time and effort. Let’s examine these more closely.
Minimum Age
The minimum age of an individual applying for credit through Sheffield Financial and Kubota Credit is 18. Usually, this will also require a strong co-signer as most 18 year old’s don’t have much of a credit history, however, everyone’s situation is different and there are exceptions.
Payment History
This actually goes hand in hand with credit score. However, if you’re just starting to re-establish your credit history after judgments against you or write off’s from previous lenders, it may take you longer until you get your credit score high enough that it’s no longer a factor.
Debt to Income
If you have a decent credit score but your debt to income is high, depending on the amount that you’re trying to finance, this may come into play. On the other hand, if you’re credit score in borderline, but your debt to income is low, it could help play into your favor. What is a good debt to income number? The lower the better! You can figure your debt to income by adding your monthly payments (mortgage, car loan, credit cards) then dividing that number by your gross monthly income.
For example: If each month you paid
Mortgage $ 900
Car loan $ 150
Credit card $ 200
$1,250.00 is your monthly debt. If your gross salary is $ 3,000, 1,250 divided by 3,000 = 42
In this example, the debt to income is 42%.
This is a example of a average range chart used by lenders according to Credit.org
· 35% or less = Good
· 36-43% = Acceptable but Needs Work
· 44% and up = Bad
Our example was 42%, which falls into the acceptable, but needs work category. Bear in mind, every lender has their own chart they use; this is only an example of how they work. One way to overcome a high debt to income ratio is to add a co-buyer and their income.
Credit Score
According to Jim Akin’s Report What is Credit? from Experian.com “Credit is a tool that can help you buy things you need now and pay for them over time. Establishing and building up good credit over time is an important element of sound financial health.” A credit score is basically a “grade” as to how well your debt is managed. In 1956, the Fair, Isaac and Company (now Corporation) developed a way to measure consumer credit risk, thus the FICO score was born. This has since become one of the primary fixtures of consumer lending in the United States. Your payment history on your monthly credit card, and various loans and sometimes utilities make up your credit score. Simply put, if you are slow to pay, ignore your payment due date or sometimes skip payments, your credit score will lower. If you pay before the due date each month, your score will be higher. A FICO score of 670-739 is considered good, 740-799 very good, 800 and above excellent. A good FICO score is a very powerful tool. I have had instances where customers who earn six figures per year are turned down for financing, whereas customers earning minimum wage get approved. Income doesn’t matter, it’s all in how it’s managed.
Bankruptcy
Debt is one of those things that can creep up on all of us. Suddenly, an individual can find they’re financially drowning. According to USCOURTS.GOV, approximately 779,000 people had to file for bankruptcy in 2018. Regardless of the reason, if bankruptcy was part of your past, you still may be able to qualify for financing.
30 years ago, after a bankruptcy, financing equipment was difficult. This is no longer the case. All of the vendors we deal with require at least a 2 year minimum of re-established good credit since filing for bankruptcy. This is great news. Many people start receiving credit card offers immediately after filing for bankruptcy. This is a great way to start to re-establish your credit. Yes, they usually have a high interest rate, but the key is to get a low limit card and to use it wisely so you are able to pay it off in full each month so you are never charged that high interest rate. Once you’ve gotten in the habit of paying it off in full each month, get another low limit card and continue to do the same. Pay attention to the due dates- that’s the key. So if you do run into hard times, you can usually bounce back and re-build your credit. Yes, it may take time, but it can usually be done. Again, everyone’s situation is different.
Hopefully, I’ve given you some insight as to what the lenders we deal with are looking for when we submit an application. I am most definitely not a financial guru. These observations have come from my 32 years of experience here at Humphreys. The best part is, it doesn’t matter how much you make, it’s all in how you manage it, or your recovery.
With the help of the internet, today you can find endless resources to help establish good financial habits. If you’re thinking about financing a tractor or piece of equipment give us a call or come in today!
