How much can you afford for a car loan
11.4 Taking out a Car Loan (installment loan)
How much can you afford for a car loan? You should know before you go to the bank.
3 c’s______________________,_________________________, ______________________
Does an excellent/very good credit score guarantee that you will be approved?______
Total debts (Car payment +mortgage or rent, student loans, credit card payments, other installment loans, etc.) must be less than or equal to 40% of gross monthly income.
• Banks also typically want to see 2 years of steady employment in same line of work.
• References, may need a co-signer if no/poor credit history. Never, never, never cosign for a ____________________________.
• Banks will want you to have some “Skin in the Game” =______________________ recommended ______% of car price. Ex:
Ex: Gross annual income $30,000 divide by 12 = $ 2500 Gross monthly income x 40%
$2500 x .40 = amount of monthly debt payments $1000.00
Rent - $450.00
Student loan - 250.00
Credit cards - 125.00
Total available for car payment $ 175.00
If your loan payment is too high for your capacity, what can you do to make payments more affordable?
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Name:____________________
1) Josh makes $45,000 a year as a sales rep and wants to buy a truck. He has an 800 credit score. His estimated truck payments are $598/ month.
He currently has no credit card debt but his rent is $700 a month and student loan payments are $250/month. Can he qualify for the loan?_____
How much can he afford as a monthly payment? $________ Show math:
2) N’Bria makes $52,000 a year and wants to buy a 2012 Lexus Coupe. Her estimated payments would be $625/mo.
She has rent @ $625 and a student loan payment of $285/mo. She also bought a new sofa with 12 mo. Free financing @ $75/mo. Can she get the loan?________
How much can she afford each month for a payment? $_____
show math:
3) Bernie makes $75,000 a year and wants to buy a slightly used BMW. His estimated payments would be $816/mo.
He has $ 750 mortgage, $349 student loan payments, $40 (minimum payment) credit card/mo. And $375/mo. payments on an engagement ring from Shane Co. for the next 12 months.
Can he get approved for the loan? _____ How much can he afford each month? $________
Show math:
4) Susan makes $ 32,000 a year as a hair stylist and wants to buy a used Chevy Cavalier. The estimated payments are $286/mo.
She currently lives at home and has $140/mo student loan payments and $150/mo. on credit card bills. She also would like to move out and get an apartment soon. Can she afford the loan? _______ How much can she afford a month? $____
5) YOUR TURN:
How much do you expect to make your first year of Full Time Work? $_______________
Calculate 40% of your monthly Gross income? $__________
Assume you have Rent: $_________
Student Loan: $_________
Credit card payment: $_________
How much would be left for a car payment? $___________
*Remember to bring VIN # to class on Wednesday. We will be finding trade in values for your vehicle.
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