Subprime auto lenders look beyond credit scores to approve financing based on factors such as income, and have employment qualifications that must be met when dealing with bad credit car loans. But how that income is earned makes a difference.
Qualifying Income for a Bad Credit Car Loan
You can typically qualify for a car loan with $1,500 to $2,000 of monthly earned income, before taxes, though specifics vary by lender. In order for your income to qualify for a car loan, it must be from a single, taxable source. If you have multiple sources of income, those won’t help for initial minimum requirements. However, the additional sources are useful when a lender is calculating your ability to repay a loan. Lenders want to make sure that the combined car and insurance payment won’t take up too much of your income, so you can pay all your bills in full and on time.
Qualifying Employment as an Employee
An employee is someone who works for someone, and has taxes withheld from their paychecks, and paid to the government by the employer. Many Americans fall into this category, and are sometimes referred to as W-2 employees.
To prove your income, you’ll need to provide a lender with your most recent computer-generated check stub. The length of employment for a car loan is also important. You typically need to have been at your current job for at least six months and have been employed for at least three years. It’s okay if the three years isn’t all at one job, as long as there were no large gaps (more than 30 days) between jobs.
If you’re between jobs, or work in a setting such as a factory where unemployment is issued during shutdowns, you should know that unemployment income is never accepted as valid source of income.
Getting a Bad Credit Self-employed Auto Loan
If you’re self-employed, or a 1099 employee, with poor credit, your income may be used to qualify you for an auto loan with the proper documentation – at least three years of tax returns. Bank statements, invoices, and financial records won’t cut it in this case. Only your verified, paid tax returns are considered a valid form for proof of income.
If you don’t work for someone else, or do so as an independent contractor, you’re most likely a 1099 employees. Other examples of 1099 employees are hairdressers, contractors, Etsy shop proprietors, and referees.
Auto Financing for People with Unearned Income
Unearned income such as disability, social security, child support, and alimony may not qualify you for financing – especially if it’s all or most of your income. This is because many forms of unearned income aren't garnishable, or aren’t taxed.
In order for a source of income to count toward auto loan qualification, it must be garnishable. This means that it’s a form of income that can be diverted to pay a debt, if necessary. Non-taxed income often can’t be used for this. Therefore, even if you make enough money from unearned income to afford auto loan payments, a lender won’t be able to accept it as a valid source of income.
If you receive social security income, you may still be able to qualify for a subprime auto loan, but chances are you’ll either need some kind of additional, taxable income, or a cosigner.
Alternatives to Check Out
Cosigners are common in bad credit auto financing, and lenders often require you to have one. A cosigner has to meet all the lender qualifications, including income, debt to income, and payment to income ratios. Cosigners give the lender additional assurance that borrowers will be able to successfully complete a loan.
If you need a cosigner but getting one is out of the question, you might try a buy here pay here (BHPH) dealership. These dealers are known as in-house financers, finance loans themselves, and handle payments a bit differently than other lenders. BHPH dealers typically don’t run credit checks, and may consider different types of income, making SSI and disability car loans a possibility. Just know you’ll likely have to visit the dealer on a weekly or bi-weekly basis to make your payments.
The Bottom Line
If you need a vehicle, but credit is standing in your way, let us help. Here at The Car Connection, we’ve teamed up with a nationwide network of special finance car dealers that have the resources to get you on the right path, even if your credit is poor or practically non-existent.
It’s easy to get the process started, just fill out our simple, no-obligation auto loan request form today and we’ll begin working to match you with a local dealer who can help!