Using Banks and Bank Accounts/Auto Loans

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Question
I am a low income earner. I only make maybe $140 a week at my minimum wage job and I use my car for deliveries. I was looking at reviews for the 2008 Ford Focus, but at dealerships it can cost $13,000 and beyond. I would really like something of quality this time that will last me, and have very few problems. But I am not sure if there is a formula I should use to determine if I'd be over leveraging myself (and possibly being charged a higher rate due to how long it is projected it will take me to pay if off)? I've been told that a used car can be a very good investment compared to newer ones which cost more and don't necessarily offer more. Is $13K too much for someone earning as little as I do to get a loan for? I don't have rent or for the most part food bills. I am still living at home so $200 a month would be feasible plus additional, and I do pay my own insurance and gas.

Answer
Hi James,


In a nutshell its very difficult to answer your question because that would depend on 2 things, whether you are getting a loan from a bank or the dealership directly as well as what is the rate and term on the loan you are looking at.

Banks determine your eligibility based on FICO (credit score) and DTI (Debt to Income), which pretty much means they do not want more than 40% of your income eaten by debt.

I am not sure if car dealerships take DTI into consideration or credit alone.


I just did a simple calculation on a hypothetical term and rate:

Basically if you get a car loan a 4.00% at a 5 year term.

Your payments would be $239.41p/m
Your ball park salary is $606.00 p/m

Based on a simple calculation, keeping in mind you have absolutely no other long term debt your DTI ratio is 39%, which looks healthy enough for you to afford the loan.

Hope that helps

Using Banks and Bank Accounts

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George

Expertise

Anything pertaining to Commercial or Retail Banking. Including, Interest rates, Lending, as well as Prime Rate questions. Also can help with online banking questions including all regulations.

Experience

Retail and Commercial banking since 2002. Currently employed as an Assistant Vice President at a Commercial Bank.

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Chamber Of Commerce, National Notary Association

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Extensive credit knowledge.

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