Consumer Car Buying Advice Blog

You need to know how much you make and how much is left over after paying your bills before filling out an application for a bad credit car loan.

Bad credit auto loan web sites

Bad credit auto loan web sites like www.autocreditexpress.com have helped thousands of credit-challenged consumers reestablish their car credit. Anyone can start the process simply by filling out our auto loans for bad credit online loan application. Avoiding a tote the note dealer and qualifying for a second chance auto loan at one of our affiliate dealers, means that applicants will not only be able to reestablish their auto credit, but they may also find that they can boost their credit scores at the same time.

Unlike tote the note dealers, these second chance car loans originate with lenders that report your payment history to the credit bureaus, which can result in raising your credit score and improving the looks of your credit report

But you need to be cautious. For example, a car that’s too expensive can stretch your budget and may even result in repossession. If this happens, the only remaining choice for most auto loans for 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 even lenders who deal in bad credit car loans will only consider applicants with a repossession on their credit report that’s more than a year old.

Income, PTI and DTI

To begin with, you need to be aware of the necessary disposable income that it will take in order to qualify for a bad credit loan so that you will be able to afford the additional monthly payment you will be assuming when you take delivery of your new car.

The first thing to do is to calculate what is known as your debt to income ratio (DTI). In order to do this, you’ll need to add up all of your regular monthly bills. This list should include your mortgage or rent payments, credit card payments, loan payments, average utility payments and anything else (such as alimony or child support) you are required to pay every month.

Once you’ve come up with a number, 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.

At the same time, you should keep in mind that most bad credit lenders don’t want you to have a car payment (including insurance) that exceeds 15% of your gross monthly income. This is known as payment to income, or PTI.

As an example, if the monthly gross income is $3,000, then your payment for a car plus full coverage insurance usually can’t exceed $450. Most bad credit lenders will estimate the cost of insurance coverage at about $100 per month. In this situation, this would leave a remaining budget of $350 as a maximum amount for a car payment.

Additional expenses

In estimating your monthly expenses, be sure to make room in your new budget for those other additional expenses such as gas and vehicle maintenance.

And one more thing: 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 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.

Know what you can afford

Keeping your vehicle payment at or even below what you think you can afford is especially important when it comes to financing a car with a bad credit auto loan. This is because with the high interest rates that are common with a subprime auto loan, you will be paying much more in interest expenses than you would with a regular car loan.

Also remember to keep in mind that the purpose of a bad credit car loan is to reestablish your car credit, not to finance your dream car. The amount financed should be kept as low as possible – such as choosing a small to midsize sedan instead of a larger car or sport utility vehicle. Another good rule of thumb is to keep the loan term as short as possible (36 to 48 months, maximum) in order to keep your interest expense down and the negative equity window of the vehicle as short as possible.

Double up on payments

During the time that you have your bad credit car loan, 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’ll be charged.

To summarize

By being aware of the hazards that exist 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 Credit Express we have helped thousands of people with bad 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 car loan application.

Tags: auto credit, auto insurance, Bad Credit, car credit, child support, credit, credit auto, credit bureau, credit report, credit score, fico, FICO score, income, repossession, tote the note

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