|
Guide to Used Car Financing for
Purchasing a Used Vehicle
When you have
made the decision to purchase a used 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 budget and not overextend their financial
means. In order to set limits, you must educate yourself about loans, credit, and
debt-to-income ratio.
A bank or lender can qualify you for a loan, but this only means that they have determined
that the you have the financial means to pay it back. This decision is based either on a
credit report, or is calculated based on the 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.
You can acquire a copy of your credit report through one of the national agencies such as
Equifax if your debts are with large lenders. 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.
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 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 the new car
buyer can comfortably manage.
|