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Problem Credit > Problem Credit: Which Car Can You Drive?
Problem Credit: Which Car Can You Drive? |
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Everyone wants to be seen driving around in the latest model cars, like Mercedes, Audi, Jaguar and BMW, but if you
have problem with credit and if your salary is not all that good, your dreams of owning such cars might never turn into reality. However, problem credit does not mean that you cannot buy a car or that you have to make do with an old car that will require more pushing than driving. A bad credit auto loan is the solution to buy a car when you have problem with credit. The type of new car that you would probably be able to afford will be determined by what monthly payment amount you will be able to afford comfortably. Find out for yourself which car you can afford To find out which car you can afford comfortably, if you have problem credit, determine the amount that you can set aside every month towards the monthly loan payments. You know your budget and using that can figure out what is best for you. You should not be swayed by what the bank or a lender might approve. Also try to keep your debt-to-income ratio at or below 35%. To compute debt-to-income ratio, take the amount of your gross income and divide it by the amount of your monthly debt, which should not include mortgage or rent payments. Monthly debt should only include things like your car loan, any credit card payments and revolving and installment loan payments. Thereafter, divide the amount of your monthly debt by your monthly gross income. To understand this further, here is an example. If your gross monthly income is $3,500 per month and you have about $700 per month in debt obligations, your debt-to-income ratio would equal 20%. If you were to add a car payment of $490 per month to that equation, your debt-to-income ratio would be at 34%. Hence, you should keep your bad credit auto loan payments at approximately $490 per month. Having figured out your monthly payment amount for your bad credit auto loan payment when you have problem credit, find out which cars fit into that price range. The next decision is the term of the loan. You don't have to settle for a 7-year term just because you are allowed to stretch your bad credit auto loan payments over that period. Ideally 3 years or less is most preferable, with 5 years being the outer limit. Where should you go to see what type of car you could purchase while staying within your ideal payment range when you have problem credit? When you have decided your ideal payment range and want to know the best car in that range, go to your bank or credit union. You can also contact the dealer. You will be quoted two different interest rates. The interest rates depend upon your credit. As a general rule, when it comes to bad credit auto loans, the poorer your credit, the higher the interest rate. If your credit is better, the interest rate will be lower. Obviously the monthly payment amount will be considerably higher if you have a low credit score. It is important that you not over extend yourself if you have problem credit. The primary objective is merely to afford a new car. When you improve your credit score, you will be able to buy the car of your dreams. |
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