Author: Michael Peterson
Article:
One of the biggest worries of car dealerships is a sudden hike
in interest rates. The higher the interest rate, the more the
borrower's monthly payment. Since the interest rate is
calculated against the purchase price of the car, a higher
interest rate could prevent many borrowers from qualifying to
finance and buy the car of their dreams.
In addition to credit scores, lenders, who make loans on
personal and real property, use a debt to income ratio formula
to determine a prospective borrower's maximum monthly payment .
The lender then adds the borrower's estimated monthly premiums
for insurance, and taxes (if applicable) to the borrower's
principal and interest payments, to determine borrowers total
monthly debt. The maximum debt to income ratio that lenders will
generally allow is 50%.
This simply means that the total amount of your monthly
payments, as currently listed on your credit report, plus the
monthly payment of your prospective bad credit auto loan and/or
bad credit mortgage loan, plus any applicable monthly taxes and
insurance can not exceed 50% of your gross monthly income. The
criteria is even sticter for good credit borrowers seeking prime
rates, because most lenders require that borrowers seeking prime
rates have debt to income ratio that is below 38%. Generally,
most lenders only require disclosure of debts that show monthly
payments on your credit. Most lenders will not be concerned
about a $100 monthly payment to your mom, from repayment of a
personal loan. So unless your are asked about debt beyond that,
which shows on your credit report don't bring it up.
This is important to understand because, a upward interest rate
spike means a higher monthly payment. Higher monthly payments,
reduce the amount that a consumer can qualify to borrow. As
borrowers maximum loan amounts are reduced the inventory of big
ticket items like cars and real estate could increase, which
would mean that supply would be greater than demand.
Can you say, "lower prices."
Fortunately, the Fed has been forced to keep interest rates low
because the economy is naturally "cooling off." As long as this
trend continues, the Fed will only continue to cut interest
rates. This "cooling off" is fueled by subprime mortgage
'spillover,' as homeowners, who are forced to cut spending,
grapple with figuring out how to pay their adjustable and
variable rate mortgages.
This could present
opportunities for those who, although credit challenged, have a
decent income and need bad credit car loans, bad credit home
loans, bad credit mortgages and bad credit car loans at a decent
interest rate.
Remember, the Fed raises interest rates to "cool " an economy
that is too "hot" and cuts rates to excite a "sluggish" economy.
Believe it, or not subprime borrowers may find it easier to get
a bad credit car loan, or a bad credit mortgage in a sluggish
economy than in a hot economy. The three keys to getting a
subprime loan, whether it be a bad credit auto loan, or a bad
credit home loan are: income, job history and residency. Income,
job history and residency can compensate for a lousy credit
score as long as you make a good wage. If you have a great
income, but a lousy credit score, now may be the time to either
purchase a car, a home, refinance and/or clean up your credit.
However, be extremely careful before you go poking around in
your credit before you apply for a home loan, or car loan.
Always check your credit first personally, before you apply for
a loan. The reason is because when you pull your credit, it does
not affect your credit score, but when lenders pull your credit
it results in an "inquiry" on your credit report, which could
affect your credit score.
Credible lenders can
determine if you qualify for a bad credit car loan, or bad
credit mortgage by examining your personal credit report that
"only you" pull. Furthermore, a personally pulled hard copy
of your credit report, will allow you to shop for the best rate
and term with many lenders. When you select a lender that you
want to work with, you then allow that lender and only that
lender, to pull your credit report. The same rules apply to
brokers that you may work with as well.
Best of luck!!
About the author:
Michael Peterson works as a freelance writer for two websites:
BadCreditBMWLoans.com,a website that specializes in helping
people get bad credit auto loans.
EmbarkFinancialllc.com,
a website that specializes in helping people get bad credit bad
credit home loans refinancing, and mortgages.
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