Most people look at their budget when taking out a home mortgage or car loan, but what about a short-term auto title loan? Do you consider your finances, monthly bills and household budget when you are preparing to borrow against the collateral of your car?
Often times auto title loans are taken when a borrower needs fast cash for emergencies or unexpected costs. This doesn’t leave much time to consider the impact repaying your loan will have on your budget and bank account. Taking some time to think about whether or not you will be able to afford paying back the loan, if it will drastically affect your budget, and what you will do should you default on your payments, could be the deciding factor in whether or not your budget can survive an auto title loan.
Budgeting isn’t easy for everyone but most financial experts will agree; making a budget is one of the smartest things you can do for yourself and your money. The thought of putting your expenses into categories may be a bit daunting but with time you can see exactly where your money goes, how much you spend, and how much you could potentially be saving.
Before you take out an auto title loan, consider looking at your budget to make sure you can afford to pay your loan back. If you have yet to form a budget for your expenses, consider the following steps to help get your finances in order:
1) Save for retirement – Putting aside for your future has got to be a priority if you want to be able to retirement and enjoy the fruits of your labor. Retirement websites and budgeting books can help you understand how much you need to save for retirement. Look at your income and expenses and decide how much of your overall income you want to put aside for the future. Consider your age, your portfolio balance (stocks, annuities, etc.) if any, and the number of years until you retire. Most financial experts recommend saving 10%-20% of your gross annual income. Check with your employer’s human resources department about the options of a 410(k) or 403(b). Keep in mind, if you take out an auto title loan and choose to pay it back out of your retirement fund, you will be penalized.
2) Set a goal – Make a commitment to set aside part of your monthly income for an emergency fund, vacation or something you want to buy in the future. The key is getting into a habit of setting something aside, instead of spending. If you can get yourself in a good, steady routine, you may be able to avoid taking out a car title loan because you will already have the cash you need in a savings.
3) Track your expenses – Look at six months of bank statements and/or receipts and add up the amounts. Then divide by six to get an average for what you spend every month. This will help you see where your money goes and whether or not you are living within your means. If the average is more than what you bring home in income, this is red flag. You will need to look at your spending and figure out where you can make cuts. If the average amount is less than what you bring home, you can still make cuts in certain spending categories and add to your “savings” category.
4) Make it automatic – Set up an automatic transfer to your savings account so that money will be taken out on a monthly basis. This way you won’t be tempted to spend that money on something else.