When it comes to budgeting for a bad credit car loan, there are a lot of factors to consider. Many times, people will throw some jargon around that may be hard to pick up on. Let’s look at some of the more common abbreviations you’ll need to know about when you’re planning for an auto loan.
Starting from the Beginning
The first thing you need to know when you’re looking for auto financing is where your credit stands. When you need a car loan, lenders will use your FICO score to determine where you stand, and what you qualify for as far as loan terms and interest rates.
Even though FICO may look like an abbreviation, the company officially changed their name in 2008, from Fair Isaac and Company to FICO. You should know when you’re gathering your credit that it’s important to look at both your credit report and your credit score, because a lender will.
Budgeting Acronyms in Auto Lending
Now that you’ve got a handle on your credit situation, it’s time to prepare your budget. The ability to budget for a car loan is one of the most important factors in getting approved. Lenders look at a lot of different factors to make sure you can afford a monthly car payment along with full coverage car insurance.
When you’re looking into this, you’ll hear a lot of terms including PTI, DTI, ACV, LTV, and TTL, to name a few. But what does all this alphabet soup stand for? Let’s find out:
- ACV – this stands for actual cash value. This is how much a vehicle is worth at any point in time, including when it’s sold or traded in.
- DTI – this stands for debt to income. DTI is a common ratio that tells you how your monthly bills – including a car and insurance payment – compare to your monthly income before taxes.
- PTI – this stands for payment to income. PTI is also a common ratio used to determine how much of your monthly income would be taken up by a combined car and insurance payment.
- LTV – this stands for loan to value. This is a ratio that lenders use to measure risk and shows your loan amount compared to the market value of the car you’re purchasing. LTV is often a factor that helps determine the interest rate of a car loan.
- TTL – this stands for tax, title, and license. These fees are charged on every vehicle transaction for taxes, registration, and titling, but aren't included in the sticker price. It’s important to keep these fees in mind when budgeting for a vehicle.
All of these terms are things to know about when you’re budgeting for a new vehicle. It’s good to also know that any of the ratios – LTV, DTI, and PTI – are always expressed as percentages, and lenders have certain acceptable limits on them. For instance, lenders don’t want your DTI to be more than 50 percent of your income, while PTI is typically capped between 15 and 20 percent. LTV always varies by loan amount and vehicle value. If you need help calculating any these formulas, there are many helpful tools online, including our car loan estimator.
After You Budget
Once you know what you can afford for your next vehicle, it’s important to go to the right lender for your situation. If you need a bad credit car loan, this typically means going to a special finance dealer. Rather than going from dealer to dealer looking for someone who has the right lender for you, start here.
At Auto Credit Express, we work with a nationwide network of special finance dealers that have the subprime lending resources available to help people with bad credit, no credit, or even bankruptcy. Our auto loan request form is free of cost and obligation, and we’ll begin working to match you with a local dealer that meets your lending needs. What are you waiting for? Begin your auto financing journey today!