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Bad Credit Car Loan Budget Requirements
Be sure to take your time when computing a budget for a bad credit auto loan
What we do
At Auto Credit Express we’ve spent close to 20 years focusing on consumers with bad credit and helping these same customers raise their FICO scores and reestablish their car credit by financing a vehicle with a bad credit auto loan. Along the way, we try to educate our applicants on the loan process, since these very same consumers can find themselves trapped in a loan they can’t afford if they’re not careful.
As with anything else, the key to a successful bad credit car loan is focusing on the basics. In order to rebuild your credit, you, as a bad credit car loan customer; need to be able to afford the additional payment you will be assuming when you take delivery of your new car.
DTI basics
The first thing that you need to do is to calculate what is known as your debt to income ratio (DTI). To do this, add up the total amount of your monthly bills. This total should include your mortgage or rent payments, credit card payments, loan payments and average utility payments.
Once you have this dollar total, divide it by your total gross income (the amount shown on your paycheck before taxes and other deductions). This will give you your monthly debt percentage. As a rule of thumb, most bad credit lenders will limit your total monthly debt to 50% of your gross monthly income.
If this percentage amount falls below 50% and there is enough room under this cap for a car payment plus insurance, then you probably have sufficient income to support a bad credit car loan payment. Also remember, though, that most bad credit lenders don’t want you to have a car payment (including insurance) that exceeds 15% of your gross monthly income.
For example, if your monthly gross income is $3,000, your payment for a car plus insurance can’t exceed $450. It is customary to estimate full coverage insurance at about $100 per month. That would leave a remaining budget of $350 for a car payment.
More expenses
If you go to our website, www.autocreditexpress.com, you’ll find a loan calculator that will help you estimate what your car payment might be. In addition to the monthly loan payment and insurance payment, remember that you also need to budget for gas as well as vehicle maintenance.
If you don’t plan on purchasing a service contract, you should be setting aside additional money each week for the possibility of major repairs. This is why a service contract is such a good idea and why you should include it in your purchase price. By including the cost in your monthly payment, you are automatically taking into consideration unforeseen mechanical problems that could otherwise cost you hundreds or even thousands of dollars.
Keeping to a budget
Keeping your car payment at or even below what you can afford is especially important with a bad credit car loan. With the high interest rates that are common with this type of loan, you will be paying much more in interest expenses than a normal car loan.
Also keep in mind that the object of a bad credit car loan is to reestablish your car credit while improving your credit score, not finance your dream car. Keep the loan amount as low as possible by purchasing a sedan and not an SUV. You should also keep the loan term as short as possible in order to keep your interest expenses down.
Paying the loan
During the time that you have your bad credit car loan, try and pay more per month than is stated on the loan contract. When you do this, include a note with your payment or make a notation on the check that indicates the additional amount should be put towards the loan principle. You should also call the loan company and indicate this is what the additional payment is for. In this way, you can pay the loan off earlier and actually decrease the amount of interest that you’re paying.
As we see it
For nearly 20 years, Auto Credit Express has been helping people with credit problems get approved for new and used car loans. Our dealer affiliates work with a broad spectrum of bad credit auto loan lenders to get you approved. Since our inception, we have processed over 1,000,000 online bad credit auto loans and closed over 1 Billion dollars in auto loans.
For more information, please visit www.autocreditexpress.com to see what we can do for you.
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