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A Full Deck: What Income Can You Bring To The Table?

Posted on Sep 22, 2011 by Thalia Green
Sep 22

Calculate income for car loansRegardless of your credit status, most lenders will want you to show proof of income. There are many ways to show a lender that you have the means to pay for a car loan. Here are some options that you can consider.

 

Employment
Employment is most commonly they way that people show that they they have the means to pay for a car loan. To show proof of employment income, most people bring a few of their paystubs. However, if you are an independent contractor or self-employed, there are other ways that you can show proof of income. Bank statements showing proof of direct deposit, or tax returns showing reported income from all customers are also acceptable to show proof of income. Don't forget that if you are currently holding two jobs, you can also use the income from your second job to qualify for your loan.

 

Alimony
If you are receiving alimony from a divorce settlement, this too can be shown as proof of income. Like employment, alimony earnings can be shown through bank statements, cancelled checks, or tax returns.

 

Settlements, Inheritance, Lottery Winnings
In some cases, people are receiving regular payouts of a large amount of money. This could be the case if you have inherited money, but also if you are receiving payments from a large lawsuit settlement, or monthly payments on lottery winnings. In all three cases bank statements and cancelled checks can be used as proof of income. You may also have to show additional paperwork regarding the payment arrangement as proof that the income from this source will be steady through the term of the loan.

 

Rental Income
If you are making money off of a rental property, rental income can also be used as income. You'll need to show proof that you own the property, in addition to your bank statements and cancelled checks from the renters.

 

In most cases employment is the primary source of income, but don't forget that other sources of income can be counted towards your loan application as well. By presenting all your cards on the table, you may find that you are able to qualify for a larger loan, or a more favorable interest rate. Each lender will have their own regulations as to what income sources are permitted. If you have sources of income other than your job, be sure to inquire with your lender as to whether your other income sources can be applied to your car loan. 

Deciding on the term of your loan

Posted on Sep 16, 2011 by Thalia Green
Sep 16

Next to the interest rate, the term of your car loan is one of the key factors in determining how much your monthly payments will be. You might be wondering whether to choose a short term, a long term, or somewhere in between. There are both positive and negative aspects to each option. Here's a more in-depth look at short term versus long term loans.



Short term car loans.
Short term car loans are generally classified as 12 to 36 months. This option is ideal for those who want to pay off the loan as quickly as possible, a definite plus if you have the means to do so. Understandably, the minimum payments for a short term loan will be higher, but the good news is a greater percentage of your payment will towards the amount borrowed, also known as the principal. To make short term loans more competitive, some lenders will opt to charge higher interest rates for short term loans.



Long term car loans.
Long term loans could be anywhere from 60 to 72 months. If you have many expenses that you working on paying off right now, a long term car loan can help make car ownership more affordable. Payments will be lower, and generally your interest rate on a long term car loan will be lower, too. The disadvantage is, long term loans can end up be significantly more expensive in the long run. A larger percentage of each of your monthly payments will go towards paying the interest. For the first year or so, you may even find that the majority of your payment is for the interest, with very little going toward the principal on the loan.



A middle ground.
One option that some people choose is to go with a long term loan but to pay extra each month. This ensures that more money goes toward the principal on the loan. If you choose this option, there are a couple of things to consider. One is your own personal discipline. You'll need to know yourself well enough to know whether you're self-disciplined enough to use any remaining money each month toward paying off the loan faster. You'll also want to find out if your lender has any penalty for paying off the loan early. If the penalty is substantial, this might not be the option for you.



In the end, there is no one best length of term. You need to decide which option will work best for you, and go with that.

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