5-1 Journal MAT 125
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Southern New Hampshire University *
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Mathematics
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Feb 20, 2024
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MAT-125-X2433 QUNT REASON & PORB SOLVING Southern New Hampshire University
November 21, 2023
5-1-1 Journal: Can I Afford That
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. 1.
According to the affordability formulas given, can he afford to take out another loan?
It is recommended that the debt-to-income ratio should not exceed 36%, as per nolo.com.
This calculation includes mortgage, property taxes, and any other loan payments. Based on Joe-Bob's income and expenses, I have found out that his rent payment accounts for 25.7% of his monthly income. When his student loan payment is added, his debt-to-
income ratio increases to 35.7%. Considering this, I would suggest Joe-Bobr right now unless he can secure a car loan for no more than $105 per month.
2.
When should he follow the affordability formulas? In what cases should he not?
To get a realistic view of Joe-Bob's finances, he should follow the affordability formula. This involves looking at his variable expenses and finding areas where he can cut costs. For example, he could cancel his cable subscription, find cheaper car insurance, or cancel
his gym membership. By doing this, he can create a margin in his monthly budget and work towards staying under a 36% debt-to-income ratio (DTI) for future lending decisions. With proper management of his monthly spending, Joe-Bob can afford to purchase a practical vehicle.
3.
How could taking out the car loan impact his other priorities?
Joe-Bob has the option of taking a car loan and reassessing his financial goals. He can create variable spending, giving him enough room to save for his other financial goals. By reallocating towards his vehicle loan, he may be able to afford the loan payments. However, he should also remember that by doing so, he may compromise on saving for emergency funds, vacations, or other miscellaneous expenses
Reference “Debt-To-Income Ratio.” Www.nolo.com, www.nolo.com/dictionary/debt-to-income-ratio-
term.html
.
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