Auto loan delinquency comes with serious consequences. Thankfully, it can be avoided. It is a problem that is best addressed before one even buys a vehicle. So if you will be purchasing a car with an auto loan in the near future, you must consider early on how to prevent delinquency from being your concern. This means thoroughly planning the purchase before you make it.
1. Make a budget
The first step to avoid auto loan delinquency is creating a budget. Before you think about buying a car, determine how much money is available in your household. Proceed with the auto purchase only when there is enough money to cover essential expenses plus auto expenses. Essential expenses are food, healthcare, housing and utilities. Remember the 20 percent rule: the money you spend for car payments as well as all other car-related expenses (i.e., car insurance) should only be 20 percent of your take-home pay.
2. Get a loan you can afford
Once you know there is enough room in the budget to buy a car, your next move should be to get financing that you can afford. Use an online auto loan calculator to estimate how much money you will be shelling out for the purchase. The figures from the computation will give you an idea of what you can and cannot afford. If from the beginning you obtain an auto loan that you can afford, you reduce your chances of being delinquent.
3. Pick an inexpensive vehicle
Surely, you have a car that you prefer to buy. However, if the preferred vehicle is expensive and would compromise your budget, choose a cheaper one. One way to prevent delinquency is to pick a car based on your needs and not your wants. If all you need is a reliable car that can take you to school or work, you should not spend a fortune on a shiny ride equipped with a lot of options. If a used vehicle is all you can afford, don’t insist on a brand new one.
4. Shop around for the best deal
You are less likely to miss payments if you get a good financing term and rate. If your auto loan isn’t much of a financial burden, you wouldn’t struggle to repay it. Therefore, you must take some time shopping for the best deal. Don’t settle for the first offer you get. Denver offers a wealth of financing sources for prime and non-prime borrowers alike—take advantage of these. It would be in your best interest to skip the dealerships and get financing from other lenders instead.
5. Talk to your dealer
Say you’ve already purchased a car and was suddenly faced with an emergency that will cause you to miss your next car payments. How do you avoid delinquency? You contact your creditor. Rather than avoid the lender, reach out; choosing the former option will get you in further trouble. Explain your situation and say why you wouldn’t be able to make payments. Know that the lender will be willing to work with you and come up with a plan to address the situation. As long as you approach the lender before your due date, the situation is not beyond repair and your credit will not be hurt.