If you have bad credit and are considering getting an auto loan to buy a car, make sure you can afford the additional expense. There is more to consider than making your auto loan payment. You should also consider the monthly cost to insure the car and the risk associated with repairs and rising gasoline prices.
On of the best ways to recover from bad credit is to get a new loan and pay it off as agreed. It goes without saying that if you get a new loan and do not make the payments in a timely matter your credit could be worse off at the end of the loan than it was before you got the loan.
So before you sign up for a new loan, make sure you can easily afford the expense. If you have bad credit, you should consider the following before getting an auto loan:
- How much will the insurance be and could you save money on insurance if you selected a different vehicle? Ask your insurance agent which vehicles will most likely carry the lowest premiums.
- How would a major increase in gasoline prices affect you? If you live close to work, probably not to much. If you commute a long distance, however, this could have a grave effect on your disposable income. Whatever you think your gasoline expense will be, add 25% to it for your budget.
- Do you have enough money put away to cover unexpected repairs, or are you living pay check to pay check? If you're living pay check to pay check you should consider purchasing an extended service contract to help cover the expense of these repairs.
I would recommend that your new auto loan payment, combined with all your other expenses, not exceed 50% of your total income. I would also recommend that your new auto payment, all by itself, not exceed 15% of your total income. If you stick to these guidelines, you should be able to make all of your auto loan payments on time and recover from bad credit.