How Debt Consolidation can help you buy a New Car
A lot of people tend to think that debt consolidation is only for people who are having trouble paying their debt. The truth is that many people use debt consolidation to lower their debt payments even if they’re not having any trouble with paying off their debt. One of the fastest growing reasons for doing this is to free up cash to afford a large purchase, such as a car.If you need to replace your car right away, you probably don’t have time to save up enough money to purchase a new vehicle without taking out a loan. Qualifying for a loan can be tricky, however. If you want the best rates, you’ll need a good credit score. In addition, though, you’ll have to be able to prove to the bank that you can afford the payments.Since every person spends their money differently, banks tend to follow a few guidelines when they determine if a person can afford a new loan. To start, they like to see that a person is not making minimum debt payments that total more than 60% of his or her income. This includes a mortgage payment, car loan, credit cards, student loans, and other bills. The bank is not as concerned with the total amount that a person owes, only that they are able to keep up with the payments for all of it.That means that in order to increase the amount that a bank will loan to you, you have to make at least one of the following changes.
- Increase the amount of money you make (get a second job or collect rental income from a roommate).
- Agree to a longer car loan term. This will cause you to pay less every month on the car, lowering the payment enough that it might fit into the bank’s guidelines.
- Lower your other debt payments.
A debt consolidation can be an ideal way for you to lower the payments on your other debts without resorting to expensive and time consuming debt consolidation processes. A
debt consolidation loan can offer you a lower interest rate and stretch out your payments over a longer time. This reduces the amount you have to pay by half. With the cash that this loan frees up, you’ll be able to afford a new car. The bank will see your reduced debt as a good sign that you’re eligible for a higher loan amount. You’ll get the car you want, and more of your money will go towards paying off your debt, not interest.