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Joe-Bob wants to buy a car and will need to take out a loan in order to make the purchase. His current monthly income is $3,500 per month. His mortgage payment is $900 per month, and his student loan payment is $350 per month. Note: You do not need to take taxes into consideration for this journal.

a. According to the affordability formulas given, can he afford to take out another loan?
b. When should he follow the affordability formulas?
c. In what cases should he not?
d. How could taking out the car loan impact his other priorities?

Respuesta :

batolisis

Answer:

A) according to the affordability formula Joe-Bob can take out another loan because his DTI is 36%

B) He should follow the affordability formula when he wants to take out  loans

C) He should not follow DTI if he isn't taking out loans  

D) Taking out a loan will negatively impact his other priorities if his DTI is very high or greater than 100%

Explanation:

using the affordability formula

The debt to income ratio = [tex]\frac{total debt}{gross income}[/tex]

total debt = mortgage payment + loan repayment = $900 + $350

= $1250

gross income = $3500

hence debt to income ratio =  1250 / 3500 = 0.3571 = 35.7%

A) according to the affordability formula Joe-Bob can take out another loan because his DTI is 36%

B) He should follow the affordability formula when he wants to take out  loans

C) He should not follow DTI if he isn't taking out loans  

D) Taking out a loan will negatively impact his other priorities if his DTI is very high or greater than 100%

anthougo

a. According to the affordability formulas, Joe-Bob cannot afford to take out a car loan.  His current DTI without the auto loan is almost 36%.

b. Joe-Bob should follow the affordability formulas to guide his decisions in taking a new loan.

c. Joe-Bob does not need to follow the affordability formulas when his debt to income ratio (DTI) is far below 36%.  He can also avoid the affordability formulas when he has the prospect of increasing his monthly income.

d. If Joe-Bob takes out the car loan despite his poor rating on the affordability formulas, he may not afford to pay his bills for necessities.

Thus, Joe-Bob should not take on more loans now until he improves his income.  An automobile will require routine maintenance and some repairs, including fuelling.

Data and Calculations:

Current monthly income = $3,500

Monthly mortgage payment = $900

Monthly student loan payment = $350

Total current debts = $1,250 ($900 + $350)

The Affordability Formula (Current Debt Payment to Income Ratio) =

35.7% ($1,250/$3,500 x 100)

The Affordability Rule states that Joe-Bob should not spend more than 36% of his monthly income repaying loans.

Learn more: https://brainly.com/question/20482529

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