Category Archives: Financial

Learn The Most Important Thing While Buying A Car

For many of us, buying a car is a way of fulfilling a life-long dream. Even though a car purchase is a common phenomenon, many make mistakes and end up paying with their credit scores. When dealing with the four-wheeled beauty, you must be diligent and strive to get the best deal. No matter what you do, there is one important thing that you cannot miss while buying a car.

Research: The Key to buying a Car with Bad Credit

If you have a bad credit history or any other problem that makes your credit application weak, the game changes for you. In an ideal world, the lender and the dealer should treat you as they treat a good credit borrower. You should be able to buy a car of your choice and obtain affordable interest rates. However, the real world is cruel and you will face discrimination on the basis of your credit score. If your credit score is below 580, lenders will consider you as a risky credit seeker and ask you to bring a down payment and a cosigner. So, how to come out as a winner and buy your favorite car with bad credit?

If you are unable to buy a car quickly, you need to research. Knowledge is power. And, when you do not have an upper hand while buying a car, you need all the knowledge in the world to secure the best deal.

Do you really want a Car?

When you are buying a car, it is important to take a hard look at your financial situation. Can you afford to buy a car? Will monthly payments put a burden on you? If you need a car to commute, it is essential that you cut down on your expenses to ensure regular monthly payments.

Spend time in selecting a Car

Thinking of buying a car and selecting a car are two different things. Do not settle for a used car because you cannot afford a new one. Search for discontinued car models in your area so that you can get your hands on a new car at a reduced rate.

Visit more than One Dealer

Never deal with the first dealer you visit. Even if you are in a hurry to buy a car, make sure that you visit at least three dealerships. Learn the different car options available at the different lots. Talk to the salesmen and negotiate an affordable price for the car. Also, search online and learn about auto auctions to get the best deal on a used car.

It’s Time for Auto Loan Research

If you do not make a right auto loan decision, it will pinch you every time you make the payments. So, find an auto financing company who works with bad credit car buyers. Ask questions about their loan process. If you are a member of a credit union, you can seek financing from them.

Do not worry about getting negative hits on your credit score. Fair Isaac Corporation understands that one cannot obtain an auto loan without rate shopping. If you find an auto loan within 30 days, the different inquiries will not have a negative impact on your credit score. So, do not worry about working with different lenders to find the best deal.

The Bottom Line

When you credit score is not excellent, you need to spend more time in research so that you do not end up paying more. Do not make a hasty car buying decision. Spend ample time in researching a car model as well as the lender. Remember that the time you spend now will leave you stress-free forever.

Swim Through Negative Equity

�Being able to breathe underwater would be sweet.’ – Cameron Bright

It is exciting to be able to breathe underwater, but when you actually go below the water surface, you will develop breathing issues. Similarly, when your auto loan situation is underwater, you will face myriad problems. In financial terms, being �underwater’ means to have negative equity on your asset such as a car. In simpler words, it is to owe more money to the lender than the actual worth of the car. It means being in an upside down auto loan situation.

How to deal with Negative Equity on your car?

Life may not be always beautiful underwater!

Negative equity occurs when you try to get out of the auto loan before it is paid off. The reason may be you bought a Sedan and now you need a SUV for transportation or you can’t afford the current monthly payments. Nowadays, people need change and variety in driving a car and so they think of buying a new car before pay off the current auto loan.

When you have unpaid balance on your current loan, the situation of upside down auto loan arises. Let us understand the reason behind negative equity in detail:

>>You bought an expensive car that you could not afford because of the high monthly payments.

>>You did not pay a large down payment in the first place which caused a rise in your auto loan balance. As a result, you are stuck with unaffordable monthly payments.

>>You have an upside down auto loan because you are paying high rate of interest. The reason can be your bad credit score.

>>Your auto loan term is too long resulting in slower repayment of the debt.

>>You rolled an old auto loan into your current auto loan which led to a rise in the total debt amount.

Negative equity and Upside Down Auto Loan: Let’s swim to the shore

Accept the fact that you are upside down on your current auto loan. You will have to deal with the difference between the car’s current value and what you still owe on the auto loan. Save yourself from going underwater with these helpful tips and swim to the shore!

>>The outstanding balance isn’t going away so you will have to pay the difference before buying a new car. If you cannot afford to pay now, keep making payments on your current auto loan. It will improve your upside down auto loan situation.

>>You can roll over the difference into your new auto loan. When you opt for it, the balance on the current auto loan amount will be included in the new one. You will have to make higher payments if you choose the option.

>>If lowering down the monthly payments is your top priority, consider refinancing your auto loan and get an extended loan term. It will provide you instant relief from high monthly payments.

>>Work overtime and earn extra bucks to pay off the outstanding loan amount. Working a few additional shifts might be the easiest way to get more cash in your pocket. Also, it will help you to lower the negative equity.

>>Sell your old car. You can get instant cash and it will help in repaying the current auto loan. When it is paid off, you can begin another journey with your new car and a new auto loan.

When you are driving your old car and see a new model of a car passing by, it will give you goose bumps. If you need the luxury of a latest car, you will have to consider your current outstanding auto loan balance. Before making any decision, consider how negative equity on your current car will affect your financial situation. Think about the upside down auto loan and prepare a detailed plan to tackle the plan. Only then, you will have the best chance to swim though the problem of negative equity and reach the shore.

The Mistakes That Come With A Longer Auto Loan Term

Most car buying stories start in a similar fashion. You have your eyes fixated on the new car but the high monthly payments do not match your current budget. The dealer suggests that you opt for a longer term period that reduces your monthly payments. You agree, thereby, falling into the vicious cycle of negative car equity. The common mistake while purchasing a car is ignoring the auto loan term. Additionally, it becomes all the more important to ascertain your loan term when you suffer from bad credit. Avoid making the following mistakes relating to loan term to ensure that your car buying decision is financially sound.

4 Mistakes that you can make with a Long Auto Loan Term

1) Getting into the rut of negative car equity

The longer the term on your auto loan, the more the build-up of negative equity. A shorter term period lessens your overall auto loan amount. Negative car equity is built when you owe the lender more than the current worth of your car. A longer time frame on your auto loan means additional interest amount whereas a short term period builds positive equity and helps you to obtain a higher amount during a trade-in or resale.

2) Paying high interest rates

The interest charged on an auto loan is the additional money you pay, over and above the price of the car. Ideally, it makes sense to opt for a shorter loan term with low interest rates. When you increase the length of the loan term, you are increasing the dollars you spend on the car. Make sure you consider the whole picture and take into account the overall loan amount along with the loan term when you purchase your next car.

3) Receiving a low resale value

A low resale value is reason enough to steer clear of the extra-long auto loans. The time you take to repay the auto loan amount significantly impacts the resale value of the car. The car value starts depreciating the minute you drive it off the dealership lot. In regards to the length of the loan term, a five-year old car is more favorable than a seven-year old car. Therefore, the shorter the loan term, the more resale value you will obtain when you sell the car.

4) Spending on high maintenance costs

Car fatigue is another reason to switch to a shorter loan term. Once you have hit your five-year mark on a car, a trade-in might be right around the corner. The average age of a car during a trade-in is five years. However, if you opt for a 72-month auto loan, the option of trade-in diminishes and your maintenance cost increases. Thus, a shorter term will not only get you a favorable resale value, but will also reduce your car maintenance costs during a trade-in.

The Ideal Solution

Every problem has a solution. A large down payment, opting for a bad credit auto loan and showing strong evidence of your sources of income will assist you when you face a difficult situation. Additionally, keep in mind the impact of negative car equity and high interest rates. Stay determined to repay your auto loan amount within a shorter time and make sure to improve your credit score for a smooth car purchase in the future.

Home Loans Preferable Over Cash Payments

The choice of deciding the home of your dreams must not be the one you make in haste. A lot of research and thinking is put into searching for a home. Many times, a decision was taken in haste proves to be dreadful in the long run. You don’t want to fall prey to the same. People nowadays fall into a think tank when it comes to the payment procedure of a home they want to purchase. Should it be a cash payment? Should it be a Home Loan? These are the two important questions that linger in the minds of the buyer.

There are several aspects that need to be considered in Cash Payment v/s Home Loan. They both have their pros and cons and thus analysis of the same will help us get a better understanding of the same. We shall study the advantage and disadvantage of each one of them to see which option is the best one – Using your savings for your home purchase or borrowing a Home Loan from the bank?

Advantages of Cash Payment:

When you are making a cash payment nobody will ask you about your credit history. You simply aren’t answerable to anyone as you decide to use your lifelong savings to buy the home. Savings are risk-free. Savings are the amounts made up over the course of years and decades. Savings are risk-free. There is no leveraging in cash payment. You’re the sole owner and there are no leverages. With cash payment, you also have the chance to get a discounted amount as the amount is being paid in cash. Finally, you aren’t indebted to anyone. Thus you are stress-free when it comes to the ownership of the home and its dues. Those are rest-assured.

Advantages of Home Loan:

There’s a sense of accomplishment in Home Loans. It’s strange but it’s true. Banks help you achieve your dreams through Home Loans. You can not only buy but even furnish the home of your dreams with Home Loans. Moreover one can avail tax benefit with the help of a Home Loan. A bank loan will help you increase your liquidity. Thus these are basic advantages of Cash Payment v/s Home Loan. Let’s discuss the disadvantages now:

Disadvantages of Cash Payment:

There is low liquidity. A compromise is a must when it comes to cash payments. For instance, if you want to buy a house along with a car and the assets have been liquidated you will be required to compromise now. You aren’t leveraged in terms of cash payments. Under cash payments, real estate is not easily convertible. These are the disadvantages of cash payment. Moreover paying with cash rules out the other form of investment.

Disadvantages of Home Loans:

The amount of rate of interest charged is stressful. The tenure for which you are required to pay the loan is long. You are more likely to fail in case your ability to repay the loan is hindering. Mortgage approval is not realistic for many of us as we do not possess ample amount of property or assets.

Thus these were the advantages as well the disadvantages of Cash Payment v/s Home Loan. You can decide which one is better based on Pros and Cons Cash Payment v/s Home Loan. We can say that there are noticeable benefits in both of them. And the number of drawbacks are less as compared to the advantages. Thus housing sector is ultimately the beneficiary in the Cash Payment v/s Home Loan discussion.

Required Documents For Home Loan

Own home is only a single place where we feel comfortable, safe and independent. Everyone has a hope their own house but due to the fund arrangement, this dream seems impossible.
But nowadays getting a home loan is quite easy and convenient. You just need to follow few necessary steps and submitting fair documents to your lender. With proper documentation, you can get your home loan in few days.

Before going to approach a home loan lender, it’s very important to gather all required documents for Home loan application and its successful approval. Bank and NBFCs ask for the following documents before sanctioning the Home loan. Let’s have a look:

Identity Proof (Anyone from the following)

�Driving license
�Voter ID
�Passport
�PAN card
�Aadhaar Card
�NREGA Card

Age Proof (Anyone from the Following)

�Driving License
�Passport
�PAN card
�Birth Certificate
�10th standard Mark sheet

Address Proof (Anyone from the following)

�Driving license
�Voter ID
�Passport
�Ration card
�Utility bill � Telephone, Electricity, Water, Gas, Postpaid Mobile (minimum 2 months old)
�Letter from any recognized Government authority verifying the residence address of the customer
�Letter from your Employer (in case no other proof is available)
�Bank Statements / Passbook / Other Government documents such as post office Passbook
�Property or Municipal tax receipt
�Pension or family pension payment orders (PPOs) issued to retired employees by Government Departments or Public Sector Undertakings, if they contain the address
�Documents issued by Government departments of foreign jurisdictions and letter issued by Foreign Embassy or Mission in India

Income proof

Income proof and property proof vary for salaried individuals and self-employed individuals.

Self Employed/Businessmen

�A brief introduction to your business/profession
�Balance sheet, profit and loss account statement of income
�Proof of income tax returns for the last 3 years certified by a CA
�Receipts of advance tax payments made (if any)
�A photocopy of Registration Certificate of establishment under Shops and Establishments Act/Factories Act
�Certificate of Practice for professionals such as doctors
�Proof of investments (FD Certificates, Shares, any other fixed asset)

The Income Factor While Buying A Car

The paycheck of your income is spent over a number of things ranging from household items to your monthly payments and dues. When you purchase a car, the gross monthly income becomes a key factor in order to ascertain your creditworthiness. Income provides a clear gateway to the lender to evaluate your plan of repaying the auto loan. Asking the right questions can help you gain clarity on how income can play a huge role in buying a car. A question we frequently struggle with is: Is income influential or irrelevant to the decision of purchasing a car?

Buying a Car: Is your Income important?

So, which income-related questions should you ask yourself as you ascertain the purchase of your car?

Q1) Can I leverage my strong debt-to-income ratio in order to obtain a new car?

The common misconception surrounding cars is that the difference between the incomes of two people determines your auto loan approval. In other words, it is to say that a person with a higher income would be more likely to purchase a new car or get faster auto loan approval. However, a lender ascertains your creditworthiness primarily through your debt-to-income ratio and then through the value of your income. A debt-to-income ratio compares your monthly debts against your income before taxes. Lenders consider a debt-to-income ratio of 36% or lower favorable. Therefore, a strong debt-to-income ratio will put you in a good position to purchase a new car with a long life and low maintenance costs.

Q2) Will I be able to manage the interest rates?

The most effective way to plan the purchase of your car is by assessing the total amount of the auto loan including the interest rate. A winning move to earn you brownie points while negotiating a lower interest rate is to pay a large down payment. The more money you put down, the larger will be your savings in terms of interest rates over the loan term. As you pay a portion of your income in the form of a down payment, it improves your creditworthiness and provides less risk to the lender.

Q3) Can I improve my approval chances with a high credit score?

Along with a good income, a good credit score equally increases your chances to get approval for the auto loan. A good credit score positively displays how well you have managed your finances and credit. A FICO score of 700 or above is ideal for quick approval. You could start by improving your credit score before you set out to purchase your car. A few methods to build your credit score include paying off any pending debts, keeping a low balance on credit cards and becoming a cosigner. As a good credit score can overshadow the situation of a low income, it becomes imperative to get your credit score to an ideal level before purchasing your next car.

Purchasing a car is no longer a luxury but an absolute necessity. So, naturally, while purchasing a car we want to make sure we get the best deal. In order to purchase your dream car, you need to ask yourself the right income-related questions and evaluate your financial standing. Moreover, with the right preparation about debt-to-income ratio and credit score, you can get one step closer to the car of your dreams.