Auto Net Financial News

One essential aspect of a bad credit car loan is making sure you budget wisely for your new car.

How to budget

At AutoNet Financial, we realize that 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.

The first thing that you need to do is to calculate your debt to income ratio. To do this, add up the total amount of your monthly bills. This should include your mortgage or rent payments, credit card payments, loan payments and average utility payments.

Once you have this amount, 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 subprime lenders will limit your total monthly debt to 50% of your gross monthly income.

If this figure is below 50% and there is enough room under this cap for a car payment, then you probably have sufficient income to support a subprime car loan payment. Also remember, though, that most bad credit car loan lenders don’t want you to have a car payment (including insurance) that exceeds 15% of your gross monthly income.

As an example, if your monthly gross income is $3,000, your payment for a car and 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.

Additional expenses

If you go to our website, www.autonetfinancial.com, you will find an auto loan calculator that will help you estimate what your car payment might be. In addition to the monthly loan payment and insurance payment, you also need to budget for gas and maintenance.

Also be aware of the fact that if you don’t plan on purchasing an extended warranty, you should be setting additional money aside each week for the possibility of major repairs. This is why an extended service contract is such a good idea and why you should include it in your purchase price – this type of program forces you to set aside money for unforeseen mechanical problems that could otherwise cost you hundreds of dollars.

Your budget

Staying within your budget 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. Keep in mind that the object of a subprime car loan is to reestablish your car credit, not buy 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 interest expenses down.

How to pay 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 principle. 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.

On the road to better credit

At AutoNet Financial, we want you to be smart with your bad credit car loan. Use this opportunity as a stepping stone to loans with better interest rates. For more information on the entire loan process, go to www.autonetfinancial.com. If you have any additional questions, there is a toll-free phone number that you can call that is listed at the bottom of every web page. During our business hours, this will put you in touch with one of our customer service representatives who can address any other issues that you may have. They can also walk you through the application process with our secure online application. This form is SSL encrypted to ensure your privacy. Remember, here at AutoNet Financial, we want you “on the road” to improving your credit.