Can I afford a loan?

First I in no way, shape or form Guarantee that you can afford any loan.
Nor do I Guarantee that IF you can afford said loan that you will continue to afford said loan for the time that you have it.

With that said read on.

Good question lets see if we can find out. There are a couple things you can do yourself at no cost.

First track where your money is going and ensure you will be able to afford the payments for your desired loan. It would not do to get a loan you can not pay and thus damage your credit score and or risk bankruptcy.

Usually people have money to spare; they just do not know it. Tracking your money and where it is spent will allow you to find the extra funds to make payments with. For instance when you buy groceries how much do you spend on junk food? Junk food can add up if you always buy donuts, pies and cakes when you go shopping for your groceries. Shop on a full stomach and resist the urge.

When you track your money be sure to keep a detailed log. Save your receipts be it cash or credit or checks then categorize them and add them up. If you already save the receipts then you are half way there. If you do not have the receipts but you utilize a checking account and or debit card and balance said checking account you may already have the data you need and simply need to categorize and tally it. You could also use this as a stepping stone for a budget.

Once you have the log now you can identify where your money is going accurately. The following list assumes a one month period and numbers are not real, they are only to illustrate for our purposes:

1 Fuel ------------- $200 2 Eating out ------- $115-$230 3 Junk food ------- $75-$150 4 Rent/Home ------$600 5 Electric ---------- $250 Total--------------- $1240.00 Net Income After tax: $1240.00

My list utilizes the entire income perhaps you do and perhaps you do not. If you do not and feel uncomfortable using your free income for a loan payment then read on.

First understand that not everyone spends the same however I tried to list a few things that may be somewhat common.

Fuel, do you drive a gas hog? Do you go places you do not need to? Can you consolidate trips? You may not be able to save much here however $10 is not a far stretch.

Eating out, fun is ok but this is not necessary in excess. We can cut this in half or more. We can save at least $115 here. It is ok to eat out but do so wisely.

Junk food, lets be honest, we do not need junk food. Have a little fun with your food but not in excess. We could save at least $75 here.

Rent/Home, Can you move to a lower rent place? Do you want to? Not much you can do about it if not. Home repairs and improvements, can they wait? This is a hard area to cut back in. Be careful about refinancing mortgages, it could cost you more in the long run. With refinancing what you save in interest could be eaten and then some by making lower payments. You may not be able to save at all here.

Electric, How many items do you have that use remotes? How many DC adapters do you have plugged in not being used? Use power strips and turn the strip off. Do you leave your computers running and not use them a lot during the day? Do you leave lights on around the house? Are your lights efficient? Do you have to use AC? Can you turn your heat down a little?  Do you turn your heat down when the AC is on? Perhaps you can save $25 to $50 here perhaps not.

The above list was devised to give you ideas and does (Edit: 06/21/2008) NOT consist of real life numbers. There is more that you may be spending and more you may be able to save perhaps not. Your logs will show you where you are spending and you can then decide if you can cut back or not.  Perhaps you will be lucky and not need to or perhaps you do not need to but want to.
With the above data we now have some information we can use. $200 dollars that can be used to be exact.

So can you afford the loan?

First, ask yourself, do you still need the loan knowing what you can save per month.

If the answer is no then you just may have saved yourself thousands of $$ in interest and I am glad I could help you.
If the answer is yes then our answer is possibly. It depends on how much you are willing to spend of the extra money you found. First you do not want to spend it all on the loan payment. You should save some of it for those payments when you may fall short for whatever reason. Thusly that gives us $150 to play with and we bank $50 for just in case. Keep in mind that Electric will be variable and Gas is rising...  With the former in mind, saving the full $200 for a few months prior to getting the loan would be advisable provided you do not have emergency cash already saved.

Now how much we can get is dependant on the creditor and how much they are willing to let you pay and for how long. Please understand that I am not recommending the following loan, I am only illustrating how one would look and the end amount paid. The following is an example of a loan, its payments and Interest paid:

Loan Balance: $20,000.00 Loan Interest Rate 6.8% Loan Term 21 years Loan Payment $150 and a final payment of $46.55 Total Payments 250 Total Interest $17,396.55 Cumulative Payments $37,396.55 Actual creditors may vary.

Obviously that is a lot of interest and one should shop around for the lowest rate. I grabbed a random amount and fit our budget to it. I do recommend paying a loan off early or getting one for a shorter period so you end up paying less interest. Be aware that some loans do not let you avoid the interest if you pay early. Find out before you sign the deal.

Things to be aware of:

I in no way, shape or form Guarantee you can afford any loan.
I in no way, shape or form Guarantee you can continue to afford any loan to its completion.

If you fail to pay the loan off on time or miss payments you will damage your credit.

Many creditors ask for collateral in case they can not collect your debt.
Do not place your house as collateral unless you are 100% certain you can afford the loan. For that matter, do not place anything as collateral that you are not willing lose should you fail to repay the loan.

Once you figure what you can afford to pay does not mean the creditor will agree that you can pay it and be willing to lend you the money.