Can You Afford a Car Loan with Your Low Income?
If you are in the process of buying a car, you need to know how much money you can actually afford to spend on the car loan. Car loans and low income don’t go hand in hand, but if you follow these steps, you can make it work!
Evaluate Your Budget
Review your bank statements and ensure that you’re getting in control of your spending. There are plenty of different things you might need to cut back on, but for many individuals it comes down to utilities and food. If you’re using more energy than necessary, upgrade your home appliances or consider lowering your thermostat setting during peak hours.
Also if possible, buy local and seasonal food products. When it comes to car loans, income is not always king; ownership is everything! As long as you have enough income to maintain your ownership status quo, there’s no reason why a car loan should be denied.
Consider Insurance Costs
Insurance is just another expense to be considered when looking at car payments. If you opt for liability insurance and collision insurance, it will add about $10,000 in costs over five years. Depending on your income level. getting coverage could be out of reach. However, if you have low income and poor credit, you may still be able to get an auto loan but consider opting for liability only instead of full coverage. It could save you up to $5,000 in costs per year if you don’t expect to make claims on your policy anyway.
Determine Your Down Payment
If you decide to buy a car, one of your main considerations should be how much money you have available for down payment. A car loan will allow you to finance up to 100% of your car’s purchase price and still afford insurance, gas, and maintenance. But if your down payment is too low, there may not be enough cash on hand for big expenses like these.
Pick a Car With Good Resale Value
Low-income earners tend to get stuck in cheap cars because they are often unable to secure loans from banks. If you want to buy a car, but have low income, you should keep your eyes open for dealers who provide cars on lease. One important thing that you need to do is picking up a car with good resale value. As stated by Bank rate, if you lease or buy an affordable new car and sell it at near its sticker price after three years, chances are that you will recoup most of your money.
Also it’s important to understand how long loan terms can save you money in depreciation compared to shorter terms and payment amounts may vary depending on what type of rate reduction program is available.
Budget for Maintenance and Repairs
When you’re shopping for your car, make sure to compare not only interest rates but also annual mileage limits, loan term lengths and maintenance plans Ideally, you should try to pay cash for as much of your car as possible and then get an auto loan to cover its remaining cost. That way you can budget for maintenance and repairs.
Avoid taking out a car loan if you have poor credit or no established credit at all. If that’s the case, you may need to put down 20% or more on your vehicle or pay more each month in interest. In those cases, it may be worth saving up until you can afford to buy your car outright; otherwise, you could end up paying too much in interest over time.
Avoid Buying Used Cars That Need Major Repairs
Property is king. Cars are usually one of those things you buy because of property. While buying a car can be an exciting experience, it’s important to consider your budget before committing to a purchase. While buying cars outright may sound smart, low-income individuals should think twice before doing so because when you don’t have enough money to pay for repairs after putting your vehicle into service, owning that car can quickly become an expensive endeavor.
Don’t Forget About Gas Money
If you have bad credit, you may be approved for an auto loan, but chances are that your payments will be high. So if you get approved for a $10,000 car loan, chances are your payment is going to end up being $500 or more per month. If you don’t have another income source to cover these expenses, it might be difficult to keep up with your payments.
Ask for Dealer Cash Back Offers
Instead of simply telling you to seek out loan offers from banks, we’ll tell you what specific actions to take. Credit unions and online banks might offer better rates on loans than more traditional institutions, so start by calling them up and asking for a quote Once you have your interest rate,
print out your most recent bank statements to show income levels and property ownership if any. Next head down to your local dealership and ask about manufacturer cash back offers. If you already have financing in place, it doesn’t hurt to try for additional money off your purchase there are also plenty of other ways dealers can lower your payment costs.