Lending is all about the assumption of risk. A lot of people don’t want to lend money because they know that there’s a good chance they won’t be able to recover the amount. Yet banks and other lenders are able to do so profitably by being wise about who they give money to and how they mitigate the risks. For example, they look to the applicant’s debt to income ratio. It means they sum up all the existing debts including mortgage, other car loans NZ, credit card debts, student loans, and personal loans. Ideally, the payments for these should be less than a third of the monthly income. If it is higher, then you should consider ways to improve your DTI.
Reduce Your Debts
The first thing you should look into is reducing your debts. Pay off what you can right away so you won’t have to worry about it anymore and lower the monthly payments. Hold off on taking on more loans until you get this into a more manageable level. If you ever get a windfall such as an inheritance, a bonus, or a lottery win, then use it to pay down your debts as soon as possible. Don’t use it to spend frivolously on things that you don’t really need. Instead, help yourself and alleviate your stress by improving your financial position. You can put what remains into your emergency fund until it’s good for 12 months. In case anything is left, you ahead and spend on whatever you want.
Increase Your Income
Another way to pull down your debt to income ratio is to increase the amount of money you take in every month. For example, you might apply for a higher position in your company or ask for a raise after years of solid performance. You could also look elsewhere such as moving to another company with a better offer or taking on a second job. You might rent out assets that you aren’t using such as a spare bedroom. You could also collect child support, alimony, or disability benefits if you are entitled to any of these.
Lower Monthly Spending
You can also improve your financial situation by lowering your monthly spending. Cut out all of the things that you can do without and leave only the essentials. Sometimes you have to sacrifice in order to get what you really need. Maybe you can eat outside less and cook at home more. Perhaps you could reduce your spending on clothes, collectibles, and hobbies so that you can afford the car loans NZ lenders are offering.