A Guide to Loans, Credit, and Setting a Budget for Purchasing
a New Vehicle
When you have made the decision to purchase a new vehicle,
the excitement and anxiety can often lead to premature decisions
about finances that can lead to disaster. Before choosing
a vehicle, prospective owners should set a firm preliminary
budget and not overextend their financial boundaries. In order
to set limits, you must educate yourself about loans, credit,
and debt-to-income ratio.
A bank or lender can grant qualification for a loan, but
this only means that they have determined that you simply
have the financial means to pay it back. This decision is
based either on your credit report, or is calculated based
on your debt-to-income ratio. The first option represents
what you are willing to pay, while the latter is a more reasonable
estimate of what you are actually able to pay.
Consumers can acquire a copy of their credit report through
one of the national agencies such as Equifax, Trans Union,
or Experian if their debts are with large lenders (or from
several online sources mentioned in the "Top online resources
for car loans" of this guide). For those owing to smaller creditors,
a request to more than one of these agencies is suggested.
Check the reports for any inaccuracies, and then find out
what you can do to essentially clean up your poor credit rating
if you have one. (You will receive more information on credit
and scores in section two "The Importance of your Credit
Report and Credit Score")
As mentioned previously, credit reports are only one method
of assessing a car buyer. Debt-to-income calculates a budget
by adding up monthly installments for auto and credit card
payments, and dividing the total by the individual's net pay.
This does not always show an accurate picture of what an individual
can actually afford, because it does not take into account
other necessary expenses such as mortgage payments, utility
bills, groceries, insurance, gas and other living expenses.
In order to make a financially sound decision when setting
a budget for the purchase of a new vehicle, take an honest
look at everything. Total up all your monthly living expenses,
excepting loans and credit cards. Then add every annual expense
such as retirement plans, car insurance, and other yearly
fees and divide this total by twelve. When the two numbers
are totaled and then added to the individual's monthly credit
expenses, the overall total can be subtracted from the monthly
net income to determine the amount of money you can comfortably
manage.
Consumers who are able to pay cash for a new vehicle will
save money by avoiding financing altogether and calling on
funds that may come from savings accounts and other securities.
However, it is advised that these buyers use caution when
assessing their situation so that they have enough of a cushion
should finances fall short in the future.
Research and analyze as much information as possible before
committing to a financial plan and purchasing a specific vehicle.
Lending institutions often do not take the full range of expenses
into account, and it is up to the consumer in the end to make
a responsible and manageable financial decision. Effectively
utilizing online financial resources can help tremendously
in this process. The following list of financial web sites
can help you with all your credit needs:
Up2Drive: will finance both new and used vehicles. They have good rates and once approved, they will send you a drive check™. Similar to a personal check, the drive check™ allows you to finance the purchase of your next vehicle or refinance as if you had cash on hand. If you are refinancing, you can use your drive check to pay off your existing loan and enjoy a low monthly payment with up2drive. You are under no obligation to up2drive until you actually use your drive check™. - You need good credit to use this service.
MyAutoLoan: Once you apply for a loan, they will send your application to up to four loan sources at once. They allow lenders to compete for your business. Loan approvals are near instant. |
