What’s my Budget?

Most often when I meet with people the first question I am asked is “what will my interest rate be” and the second is and most importantly  ”what will my payment be?”

To answer their initial question: Interest rate is a determination of risk made by the lender.  That risk assessment is based on the following factors: an applicant(s)’ capacity to pay, their credit history and last but not least the applicant(s)’ residence and employment stability.

In an effort to determine an applicant(s)’ capacity to pay the lender will calculate a customer(s)’ current debt service ratio.  Debt service ratio is a calculation of the total amount of the applicant(s)’ monthly obligations divided by the applicant(s)’ total monthly gross income.

Lenders traditionally set the benchmark for maximum debt service at 40%.

*When the debt service exceeds 40% the lender may increase the interest rate on the loan as a result of the increased credit risk of the loan.

Below is an example of how debt service is calculated.

Budget Calculator
Applicant Source Gross Amount (before tax/deductions)
Income XYC Inc 3200
Income
Income
Total 3200
Co-Applicant
Income
Income
Income
Total 0
Total Combined Income 3200
 

 

Lender Type Monthly  Obligation
Rent Mortgage/Rent 600
Car Payment 512
Car Payment
Loan
Loan
Line Of Credit
Line Of Credit
RBC Visa Credit Card 85
Credit Card
Other
Other
Total 1197
1197 3200 37%
Total Monthly Obligations divided by Total Monthly Gross Income equals Total Gross Debt Service

 

In this example the customer has shown that he/she has the capacity to take on the car payment of $512.00. The debt service ratio is 37% (below the 40% threshold).

The first hurdle is now cleared (*the lender may request paystubs to verify the applicant’s income).

The lender will now move forward and review the applicant’s residence and employment stability and credit history in order to make an approval decision on the application.

If you are unsure of what you can afford, Crown Credit Solutions can help.  As a part of our Free No Obligation Credit Evaluation we will work with you to determine a payment that meets your budget.

Call or visit us today!!

We are here to help.

 

 

Shaun Proutt

General Manager

Crown Credit Solutions

Crown Automotive Group

1700 Waverley St.

Winnipeg, Mb

 

www.crowncredit.ca

 

Direct         (204) 275-4438

Cell             (204) 791-0813

 

Fax             (204) 275-7669

 

Toll Free 1 (877) 346-8082