One of the features of car financing loan that you should consider is the monthly installment. The lender will usually want to know the amount of income you make per month to determine how much installment you should pay. Experts advise that your monthly payments should not be more than 18 percent of your gross income. Any amount that is more than this may end up being expensive to pay back.
If the loan you have been given comes with monthly payments that are too much for you, consider extending the term of the auto loan. Most lenders offer auto loans for terms ranging from 2 to 5 years. Some lenders will give you loans with shorter or longer terms based on your requirements or financial situation. With a longer term loan, you will have more disposable income in your budget to cater for other expenses you may have.
A car financing loan whose term is long will end up costing more in the long run than a shorter term one. Consider the suitability of a loan and how it is going to impact your credit score as you calculate the amount of monthly installment that you can pay.
How To Avoid Monthly Payment Penalties
The monthly payment will be part of your monthly budget during the term of your loan. When you apply for financing, be ready to set aside some funds every month to pay back the loan. Getting an auto loan that comes with an affordable monthly payment plan is important in two ways; it ensures you will not strain your budget to pay back and leaves you with enough income after paying your debts. If you fail to honor your monthly payment, the lender may offer a grace period of between 7 to 21 days. When the period elapses, you may be reported to consumer credit reporting agencies for failure to service your debt. Apart from this, you may be liable to pay extra service fees and late payment penalties.
You should avoid monthly payment fees at all costs. It is simple to avoid the penalties; simply pay your installments on their due date. If you find you are straining to pay the installments, talk to the lender and ask for a new payment plan. Some lenders will not have a problem extending the term of your car financing loan or revising the terms to offer you a more convenient payment plan. Make sure anything that you agreed with the lender is done in writing and signed by both parties. Verbal agreements may not offer a good defense should matters need to take a legal turn in future.