How To Bag A Good Car Deal With The Help Of Auto Loan Ratios?How To Bag A Good Car Deal With The Help Of Auto Loan Ratios?

The general assumption is that obtaining a bad credit auto loan is a long and strenuous journey. While bad credit history may put some bumps in the road, it is still possible to get auto financing with ease. When you are in the market to buy a new vehicle, the least you could do is gather all the information that will be helpful to crack a good car deal. Knowledge is power and understanding the nuances of different auto financing ratios will really put you in the driver’s seat when you set out to purchase the car of your dreams.

The Ratio Game: Know Different Ratios to boost your Car Buying Process

When you know you have a bad credit score, take help of all the necessary tools to obtain a good deal. The following auto loan ratios will come to your assistance when you need them the most.

1. Debt-to-Income Ratio

Wouldn’t it be great if you could calculate how much of your income goes towards your debt and other financial obligations? The debt-to-income ratio will help you to accurately calculate the income that is already accounted to debt expenses. For instance, if you have a monthly salary of $5,800 and your total debt including your auto loan payments sums up to $2050, then your DTI ratio will be 35%. Ideal debt-to-income ratios is 36% and lower the DTI ratio, the more beneficial it will be in assuring the lender of your strong financial condition. Therefore, eliminate your unnecessary expenses before you walk into the dealership lot to enjoy a better debt-to-income ratio.

2. Balance-to-Limit Ratio

The credit utilization ratio or balance-to-limit ratio measures how much credit you are using against how much credit is available to you. Say, you have a credit limit of $10,000 and you have used $4,000 out of the given credit, then your balance-to-limit ratio is 40%. The credit utilization ratio is a very important ratio as it composes of 30 percent of your FICO score, resulting in a direct impact on your credit score. Thus, make sure you do consider your balance and credit limit before you start selecting your favorite car on the lot. Lower your expenses to ensure a better credit utilization ratio.

3. Loan-to-Value Ratio

The loan-to-value ratio is the measurement of your loan amount as against the market value of the asset that you are going to purchase, i.e. the purchasing price of the car. A loan-to-value ratio helps a lender assess the risk associated with the transaction. If you need $25,000 for buying a car and the lender provides you with the same amount, your LTV ratio is 100 percent. A higher LTV ratio usually means high risk for the lender. A great way to secure a good LTV ratio is to have a good credit score and stellar income. It will manifest you as a strong candidate for better LTV ratio. If your credit score is weak, pay a hefty down payment amount for the car from your savings and then seek a low rate auto loan for the remaining amount.

Bad Credit, Good Ratios

A bad credit score does not necessarily mean no approval on your auto loan applications for the rest of your life. Make time to understand the auto loan ratios and how they can be helpful to you in the long run of your auto financing journey. Your credit history maybe bad, but if your ratios are good, you can take home your dream car.

Whether you have a bad credit history or you are a young car buyer with zero credit score, do not worry.

by Adam Porter
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