Find out the consequences.
Finally you gathered the amount needed to renew your car, you have thought up to the color of that truck that you dreamed so much and where you will travel with your family in a comfortable and safe way. Everything sounds great, moving from a compact car to a mini-van is a big leap, but have you evaluated everything it means to have an auto loan? Have you calculated the amount you will have to pay month by month ?, and if so, does this amount agree with your income? If you are ready to buy your new car or van, but have not yet thought about the impact of the purchase, in this article I will help you to prevent possible complications in case you cannot fulfill the commitment of Pay your car credit on time.
I will start by sharing information about loans in general and, of course, I will tell you about car loans and their characteristics.
What is a credit?
A credit is an amount of money that some financial or banking institution grants you with the purpose of acquiring a real estate (in the case of mortgage credit), a car (auto credit), remodeling your home or renovating your furniture (personal credit ), etc. There are different types of credit and this difference lies in the amount to be requested and the purpose of your request.
How does an auto loan work?
An auto loan works like any other loan. It is a loan for a certain amount granted by a financial entity with the specific purpose of acquiring a vehicle. A loan to obtain a car is one of the most requested resources by all those clients of banking institutions that want to see their assets grow with some good. As with any other credit, before authorization of said credit you have to meet certain requirements imposed by the financial or banking institution.
● One of the requirements to obtain your auto loan is the down payment. The hitch is a percentage of the total value of the vehicle and is taken into account as a down payment. This varies depending on the brand, type of vehicle or offer of the agency. In the case of automotive credit, the approximate down payment is 20%.
● Another essential requirement for obtaining a vehicle through an auto loan is your credit bureau score. The financier will review your credit behavior and based on this you may or may not be a subject of credit.
Although credit or auto financing is one of the most common ways to obtain a vehicle, there are other options that can fit your needs, here are some:
● Financial leasing or leasing: Leasing is recommended in case you do not have enough liquidity. It is ideal for people who like to release a car every two or three years. In this mode, the monthly payments are for leasing and not for the purchase of the vehicle.
● Self-financing: This system works through groups of people with the same interest: purchase a vehicle. This financing is not considered a credit, since the payment of the monthly payments begins before the acquisition of the vehicle.
● Personal loan: This type of credit is another option if you want to buy a car. This is a very practical and quick response type of credit. The interest rate in the case of personal loans is usually high because there is no guarantee of payment through any good.
Can you buy a new car? Let’s talk about your finances
Before applying for your auto loan you must take into account the health of your finances. For this I make the following recommendations:
1. Check the liquidity of your finances. Liquidity is your ability to pay your expenses and meet your obligations. In order to evaluate your liquidity, I recommend you to take stock of your income and expenses. Keep in mind that the amount you should consider in your balance is that of your net income (after paying taxes). As for expenses, I recommend taking into account both fixed and variable. The amount that results from the difference between your income and discharge tells you about the level of liquidity with which you count.
2. Make a list of the expenses that come with the purchase of your car. When we buy a car, we rarely think about the expenses that come after the acquisition. Once you purchase your car, you should consider expenses such as the service of the vehicle periodically, the payment for car insurance, and, depending on the area where you live, some tax such as the payment of tenure and verification.
3. Analyze if the car you have chosen is what you really need. Depending on the type of vehicle will be the cost of it and therefore greater will be the credit you must request. That is why I recommend you evaluate if the commitment to acquire that car will not represent a debt problem for you and your family.
Now, you know what auto financing or credits are all about, what requirements you must cover to get one and, after giving you some recommendations, you know that you should also consider your personal finances before making a decision.
It is time to talk about the consequences in case you have already bought a car and cannot with the payment commitment. Perhaps you are only a little nervous about the breach of this type of credit and want to know what the repercussions of this situation will be. Whatever the reason for your interest, here I tell you what could happen if you can’t pay your credit on time.
The first consequence in case of not paying your payment on a regular basis will be the payment of default interest. These interests depend on the rate set by the contract you signed with the financial one. In the event that the default occurs for a longer period (accumulated months of default), the financial company could take your car, however this is not the most common, since before you are given other options so that you can regularize your credit .
Another consequence, and a rather annoying one, is the phone calls with the purpose of reminding you about the delay in your financing fees. I recommend two things: answer and explain your situation. I recommend you answer your calls and explain the situation you face, this will demonstrate your willingness to pay off your debt. Once you expose your situation, the financial institution could forgive you some payments or make you some discounts (this will depend on the conditions of each credit or financing). However, this would seriously affect your credit history.
Another risk that you run when you are in a desperate situation of debt, is to want to apply for another loan to pay off the first. Be careful, this could lead to more debt. It is better to resort to the entity with whom you signed a contract and reach agreements.
A risk that is run indirectly to cover this expense is the use of companies called “credit repair companies”. These companies offer to solve your situation of overindebtedness through negotiations with financial institutions and erasing your history in the Credit Bureau Be careful! Some of these companies are not regulated by law or supervised by the government.
One of the most serious consequences that could harm your future plans to apply for a loan is the impact on your score in the Credit Bureau. Any breach causes a drop in your score (or score). Your credit history score is the result of your financial behavior when making use of some type of credit. Within the Credit Bureau, credit history results in a score. This is the summary of the history in a number that goes from 400 and up to 850 points, depending on your credit behavior of the last months. Don’t let this affect your plans and those of your family!
I remind you that all the credits you have accumulate in your history, so, despite there being no default in the monthly installments, if your vehicle credit adds up to 30% of your net monthly salary along with other credit commitments, this It would affect you in case you want to request one more credit. This is because financial institutions consider that with more than 30% of your salary committed in debt payments, you would be at risk of over-indebtedness.