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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 section 6
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:
PeopleFirst
PeopleFirst.com is the nation's largest online originator
and servicer of Blank CheckSM vehicle loans. They focus on
convenience, fast approval, a hassle-free loan experience,
and above all, exceptional customer service. Approval decisions
are made within 15 minutes, even though thousands of applications
are processed daily. They are highly recommended! Enter
Here.
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