Golden State applicants with bad credit need to be sure they budget for a car before filling out the application for a bad credit auto loan.
A word from Auto Net Financial
Bad credit car loan web sites such as ours at www.autonetfinancial.com have helped thousands of consumers with bad credit reestablish their car credit. You can begin the process simply by filling out our auto loans for bad credit secure online loan application. By avoiding a tote the note dealer and qualifying for a second chance auto loan at one of our affiliate dealers, you will not only be reestablishing your auto credit, you will be able to raise your credit scores at the same time.
Unlike Golden State tote the note dealers, the second chance car loans our California dealers offer originate with lenders that report your payment history to the credit bureaus. A positive payment history can then improve your FICO scores while improving your credit report at the same time.
But you need to be careful. A vehicle that’s too costly can stretch your budget. If this results in repossession, the only remaining choice for most car loans with bad credit buyers is a tote the note car dealer. It also means that rebuilding your car credit has to be put on hold for at least a year, since lenders who deal in bad credit car loans will only consider applicants with a repossession that’s more than a year old.
Your income
The key to a successful bad credit car loan in California has to do with focusing on the basics. In this case, this means being aware of the necessary disposable income required in order to qualify for a loan, so that you will be able to afford the additional monthly payments you will be assuming when you take delivery of your new car.
The first thing you need to do is to calculate what is known as your debt to income ratio, or DTI. In order to do this, you will need to add up all of your regular monthly bills. This list should include your mortgage or rent payments, credit card payments, loan payments and average utility payments as well as anything else you are required to pay every month, such as alimony or child support.
Once you’ve come up with a total amount, you then divide this figure by your total gross monthly income (the amount shown on your paycheck before taxes and other deductions). This calculation 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 the required full coverage auto insurance, then you probably have enough income to support a bad credit auto loan payment. Also keep in mind that most bad credit lenders don’t want you to have a car payment (plus insurance costs) that exceeds 15% of your gross monthly income - called payment to income ratio or PTI.
To use an example, if your monthly gross income is $3,000, the monthly cost for a car payment plus full coverage insurance usually can’t exceed $450. Since most bad credit lenders will estimate the cost of insurance coverage at about $100 per month, this situation would leave a remaining budget of $350 as the maximum amount for a car payment.
Don’t forget additional expenses
In estimating your monthly expenses, be sure to make room in your budget for those other additional vehicle expenses such as gas and normal maintenance. If you are planning on buying a used car without purchasing a service contract, you should be setting aside additional funds each month to cover the possibility of major repairs. This is why we usually recommend purchasing a service contract if the vehicle you’re buying is out of warranty and why you should buy it at the same time you buy the car and either pay cash for the policy or include it, along with the price of the vehicle, in the loan contract.
Even though this means you’ll be paying interest on the cost of the service contract, by including its 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 should a mechanical problem occur.
Realistic expectations
Keeping your car payment at or even below what you think you can afford is especially important when it comes to financing a vehicle with car loans with bad credit. With the high interest rates that are common with this type of loan, you will be paying much more in interest expenses than a regular car loan.
Also keep in mind that the purpose of a bad credit car loans in California is to reestablish your car credit, not to finance your dream car. You should keep the amount financed as low as possible by purchasing a small to midsize sedan – as opposed to a larger car or sport utility vehicle. Another good target is to keep the loan term as short as possible (36 to 48 months, maximum) in order to keep interest expenses down and the negative equity window of the vehicle as short as possible.
Increase your monthly payment
During the time that you have your bad credit car loan in the Golden State, try and pay more per month than the amount listed 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. By following this practice, you can repay the loan earlier and actually decrease the amount of interest that you’re being charged.
In short
By being aware of what the pitfalls are in a bad credit car loan, you can rebuild your credit faster and raise your FICO score more quickly while paying the least amount of interest possible on your loan.
At Auto Net Financial we have helped thousands of people with bad, blemished, bruised, and tarnished credit buy cars and reestablish their auto credit at the same time. Our nationwide network of affiliate dealers specializes in bad credit car loans.
So if you are serious about getting your credit back on track, you can begin the process right now by filling out our secure online bad credit auto loan application.
