Connect with us

Bad Credit

What’s a Good Price for Your First Car?



There are two key things that are almost always a good idea to look for in your first vehicle: reliability and affordability. When it’s your first car, it’s probably a better idea to play on the safe, especially if you’re financing for the first time.

How Much Should I Spend on My First Car?

What’s a Good Price for Your First Car?It’s probably a good idea to buy a used vehicle when it’s your first one. A new car’s transaction price averages around $39,000 these days, according to Kelley Blue Book. Used vehicles are easier for first-time car buyers to qualify for, too, since they’re just generally much more affordable.

Whether or not you want a new or used vehicle, your income is vital in deciding how much you should spend on your first car. Many financial experts recommended that you should buy a vehicle that doesn’t exceed 10% to 15% of your yearly income. If you make around $50,000 a year, aim for a car that’s around $7,500.

Of course, you could always save for a down payment and knock down the amount that you need to finance. If you want a vehicle that costs more than 15% of your income, say around $9,000, then you could save $1,500 for a down payment and only need to finance $7,500.

If you’re looking for a teenager’s first car, it’s often recommended that you spend in the ballpark of $5,000 to $10,000. With younger drivers, it’s important to give them a reliable, safe vehicle, but you also need to be a little more realistic – the car may experience some damage in those first few years.

Remember that you need to factor in the cost of maintenance, possible repairs, gas, tires, and auto insurance, too. If you’re financing, the vehicle needs full coverage. Most borrowers count on spending at least $100 a month on car insurance.

Price isn’t the only thing you should be considering, though …

The key to finding the right, reliable vehicle is finding one that’s been well-maintained, has a clean title, and it’s obvious at first glance that it was well taken care of. You can also look up vehicle history reports for cars you’re seriously considering, and possibly get a hold of maintenance records.

Take it for a test drive if you can, and look at everything and push every button you possibly can to make sure it all works. It’s a big purchase, so take your time before you sign that dotted line.

Budgeting for Your First Vehicle

Besides the price of the vehicle, down payment, and auto insurance, how much disposable income do you have each month?

Budgeting is important when you’re financing. If you purchase a car with a payment that’s hard to meet each month, it could lead to missed or late payments that lower your credit score. Too many missed payments, or sometimes even one missed payment, leads to defaulting on the auto loan, and probably losing the vehicle soon after.

To determine how much disposable income you have each month, you can use the same formula that lenders use to calculate if you can afford the car you’re looking at called the debt to income (DTI) ratio.

The DTI ratio is an easy formula that auto lenders use to see how much income you have left over after paying all other obligations. Simply add up all your monthly bills (besides groceries and utilities), and divide it by your gross monthly income. You get a decimal answer, then you convert it into a percentage to get your final DTI ratio.

When you calculate DTI, you add the supposed vehicle payment and insurance payment into the equation, along with your other monthly bills, like rent. Here’s a quick example assuming someone makes around $50,000 yearly, or $4,100 a month with monthly bills that total $1,000 (including an estimated car and insurance payment).

  • Monthly bills = $1000
  • Monthly income = $4,100 monthly before taxes
  • 1,000 divided by 4,100 equals 0.243, which is converted to 24.3%
  • DTI ratio: 24.3%

From this DTI ratio, it looks like the borrower would likely qualify for a subprime car loan as long as they meet the other requirements. As a general rule, auto lenders don’t finance borrowers with DTI ratios higher than 45% to 50% of their income with the vehicle payment and insurance factored in.

You can do this quick calculation at home with the car payment and vehicle’s selling price that you’re aiming for to see how much room you have in your monthly budget.

Thinking About Your First Auto Loan?

If you’ve never had a car, there’s also a good chance that you’ve never taken on credit or you have a thin credit history. Having no credit history can lead to a lower credit score, which can make it hard to get approved for your first auto loan.

However, even as a first-time borrower with no credit, it’s worth it to apply with your credit union first. While credit unions can have higher credit score requirements than bad credit lenders, if you have a good history with a credit union and your accounts are in good shape, it’s worth a try. Credit unions may be more lenient with a first-time car buyer than other traditional auto lenders, such as the captive lenders of automakers or large banks.

If you’ve already tried applying with your credit union or you’re pretty sure you don’t make the cut, consider subprime financing. Subprime lenders are signed up with special finance dealerships. These lenders assist borrowers with less than perfect credit, and often help first-time car buyers get the vehicles they need.

Auto Credit Express Tip: If you apply for financing with poor credit, you can bet that a lender is going to require a down payment. Most times, they call for at least $1,000 or 10% of the car’s selling price.

Let’s Get Car Shopping!

Many people believe that you should get a rust bucket for your first vehicle, like it’s a rite of passage that every driver needs to go through. But if you have a steady income, a down payment, and you’re ready to take on a car, why settle for a clunker? It’s worth your time to do research, save for a down payment, shop for affordable auto insurance, and look for something reliable that you can enjoy driving.

Jumping into your first vehicle can be stressful, and even more so if your credit isn’t great. We want to make it a little easier on you, here at Auto Credit Express.

We’ve created a nationwide network of dealers that are equipped to help borrowers in all walks of life, including first-time buyers. We’ll match you to a dealership in your local area that can assist unique credit situations once you complete our free car loan request form. It’s secure, carries no obligation, and we’ll get to work for you right away.

(function(d, s, id){ var js, fjs = d.getElementsByTagName(s)[0]; if (d.getElementById(id)) {return;} js = d.createElement(s); = id; js.src = ""; fjs.parentNode.insertBefore(js, fjs); }(document, 'script', 'facebook-jssdk'));

Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Bad Credit

Martin Lewis issues guidance on using credit cards to build ratings – best deals | Personal Finance | Finance



Martin Lewis regularly urges savers to use caution when utilising debt themed products but at the same time, he acknowledges the need for a decent credit rating to get by financially. Today, the Money Saving Expert was questioned by viewer Miranda on how one can build their credit rating in difficult circumstances.

“What I’d then like you to do is go and do £50 a month of normal spending on it, things you’d buy anyway.

“[Then] Make sure you pay the card off in full every month, preferably by direct debit so you’re never missing it because the interest rate is hideous.

“That way you won’t pay any interest.

“You do that for a year, you’ll start to build that credit history, showing them you’re a good credit citizen.

“Then you’ll be able to move into the sort of more normal credit card range.

“So, bizarrely, to get credit you need credit. What credit will you get? Bad credit, go get the bad credit just make sure it doesn’t cost you.”

Consumers of all kinds may not have the best options at the moment as recent analysis from revealed.

In mid-November, they detailed that a number of high street banks have cut the perks and interest on a number of their current account deals.

On top of this, the Bank of Scotland and Lloyds Bank made credit interest cuts of up to 0.5 percent.

Rachel Springall, a Finance Expert at commented on the few options consumers and savers currently have available: “Clearly, it is vital consumers decide carefully if now is the time to switch, but if they wait too long, they may well miss out on a free cash switching perk.

“At present, providers will be assessing how they can sustain any lucrative offers in light of the pandemic.

“With this in mind, we could well see more changes in the months to come and if this does indeed occur, consumers would be wise to review whether their account is still worth keeping.”

Source link

Continue Reading

Bad Credit

Should you use a balance transfer to pay off debt?



Should you use a balance transfer to pay off debt?
Image source: Getty Images.

A balance transfer might be the solution if you have debts and want to gain control over your finances. But whether a balance transfer is right for you will depend on a number of factors.

Things to consider before using a balance transfer

The size of your debt

If you want to apply for a balance transfer credit card, be aware that most providers will allow you to transfer up to 90% of your credit limit.

Your credit limit will be dependent on your own personal circumstances, including your salary, your credit history and your residential status (homeowner or renter).

Be realistic about your debt. For example, if you earn £25,000 per year and you have a debt of more than £15,000, a balance transfer might not be cheapest way to pay the debt.

The time taken to pay the debt

The main advantage of a balance transfer credit card is that many offer an interest-free period on the balance. So, if you can pay off your balance in that period, you won’t accrue any further interest charges.

However, these periods typically range from 18 to 24 months, so if you think you will need more time to pay the debt, you may need to factor in additional interest charges when the interest-free period ends.

Whether or not a balance transfer is the right debt payment solution will depend on your personal circumstances. Check our balance transfer calculator if you want to work out how much a balance transfer could save you in interest payments.

Your credit score

The advantage of a good credit score cannot be underestimated in this situation.

When applying for a balance transfer credit card, the company will check your credit score. Based on this score, they could refuse your application.

Even if you are accepted, if you have a bad credit score they could reduce your credit limit. Ultimately, this will determine the benefit of a balance transfer as a suitable debt payment solution.

If you think your credit score might be a problem, it’s worth checking with the credit reference agencies before applying. That way you can avoid any nasty surprises.

There are three main consumer credit reference agencies in the UK. They are Equifax, Experian and TransUnion (Noodle).

Alternative solutions to balance transfers

You could still use a balance transfer even if the size of your debt is bigger than the credit limit.

Transferring part of the debt would enable you to benefit from any interest-free period, where applicable.

Alternatively, if you have multiple debts, you could consolidate all of your debts so that you can make a single regular payment. If necessary, you could do this using an unsecured personal loan over a period longer than 24 months.

Take home

Look at your own personal circumstances with a critical eye. Remember that you need to factor in living expenses when thinking about how long it will take you to pay off your debt.

Balance transfers are a useful method for debt repayment, but be aware that credit cards are an expensive way to borrow money. Take full advantage of any 0% deals wherever possible. Check out our list of the best 0% credit cards.

Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.

Source link

Continue Reading

Bad Credit

Turn credit declines into a win-win | 2020-11-20



The pandemic has left millions of people needing credit at a time when lending standards are tightening. The result is a lose-lose situation—the consumer gets a bad credit decline experience and the credit union misses out on a lending opportunity. How can this be turned into a win-win?

The case for coaching

Let’s start by deconstructing the credit decline process: The consumer is first encouraged to apply. The application process can be invasive, requiring significant time commitment and thoughtful inputs from the applicant.

After all that, many consumers are declined with a form letter with little to no advice on actions the applicant can take to improve their credit strength. It is no wonder that credit declines receive a poor Net Promoter Score (NPS) of 50 or often much worse.

On the flip side, forward-looking credit unions provide post-decline credit advice. This is a compelling opportunity for several reasons:

  • Improved customer satisfaction. One financial institution learned that simply offering personalized coaching, regardless of whether or not consumers used it, increased their customer satisfaction by double digits.
  • Future lending opportunities. Post-decline financial coaching can position members for borrowing needs even beyond the product for which they were initially declined.
  • Increased trust. Quality financial advice helps build trust. A J.D. Power study noted that, of the 58% of customers who desire advice from financial institutions, only 12% receive it. When consumers do receive helpful advice, more than 90% report a high level of trust in their financial institution.

Provide cost-effective, high-quality advice

AI-powered virtual coaching tools can help credit unions turn declines into opportunities. Such coaches can deliver step-by-step guidance and personalized advice experiences. The added benefit is easy and consistent compliance, enabled by automation.

AI-based solutions are even more powerful when they follow coaching best practices:

  • Bite-sized simplicity. Advice is most effective when it is reinforced with small action steps to gradually nurture members without overwhelming them. This approach helps the member build momentum and confidence.
  • Plain language. Deliver advice in friendly, jargon-free language.
  • Behavioral nudges. Best-practice nudges help customers make progress on their action plan. These nudges emulate a human coach, providing motivational reminders and celebrating progress.
  • Gamification. A digital coach can infuse fun into the financial wellness journey with challenges and rewards like contests, badges, and gifts.

Virtual financial coaching, starting with reversing credit declines, represents a huge market opportunity for credit unions. To help credit unions tap into that opportunity, eGain, an award-winning AI and digital engagement pioneer, and GreenPath, a leading financial wellness nonprofit, have partnered to create the industry’s first virtual financial coach. To learn more, visit

EVAN SIEGEL is vice president of financial services AI at eGain.

Source link

Continue Reading