Having a fixed income and a lower credit score can make getting a car loan a struggle, but there are some lenders that can work with these situations. While most lenders usually prefer W-2 income, there are fixed income types that may meet the minimum requirements if it’s stable.
Bad Credit Car Lenders and Income Requirements
Bad credit auto lenders are also called subprime lenders. Subprime simply means low credit. Subprime lenders are third-party lenders that are signed up with special finance dealerships, and you work with the special finance manager who represents the lender.
Once you find a special finance dealer, your information is sent to one or more subprime lenders. If there’s a lender that can approve you, you then send your documentation (check stubs, bank statements, ID, etc.) for verification.
One of the biggest pieces of being approved for a car loan is proving that you can pay for it. If you don’t have earned income, or W-2 income, there are some bad credit auto lenders that may accept fixed income sources if it meets the stipulations, and you can prove you’re going to get it for the entire loan term.
Fixed Income and Subprime Lenders
Some subprime lenders may be willing to accept a stable, fixed income if you can prove that it will last for the duration of the loan term, which usually means anywhere from five to eight years.
You also need to prove you’re getting this income with the proper documentation, which is usually bank statements or a court letter or award letter. For a fixed income to be considered, expect to need to prove that you’ve been receiving this income for at least six months.
Fixed income sources that may be considered as your primary income includes:
- Social Security
- Permanent disability
- Public assistance
There are also some subprime lenders that can accept certain fixed incomes as a secondary income. Two different income sources can’t help you meet the primary minimum monthly income requirement that’s needed to qualify for a bad credit car loan. However, a secondary income can still count toward your debt to income (DTI) ratio.
Subprime lenders calculate your DTI ratio, which is meant to show how much available income you have each month after bills. While a secondary income doesn’t go toward meeting the primary monthly requirement, it can lower your DTI ratio.
If you have a fixed source of secondary income, there are a few that are acceptable by some subprime lenders:
- Child support
- Adoption or foster care
- Rental income
Similarly to the primary income requirements, you need to prove that you’re going to receive this secondary income for the duration of the auto loan term for it to be applicable.
Typical Income Requirements of Bad Credit Lenders
While every subprime lender varies in their specific requirements, generally, they tend to be similar as far as the minimum requirements go. Most subprime lenders need you to have a minimum monthly gross income of around $1,500 to $2,500 before taxes.
Subprime lenders also take a look at your DTI ratio. If more than 45% to 50% of your available income is going to be needed to pay for all your bills and your car loan expenses, you’re going to run into issues being considered for an auto loan approval.
Additionally, after proving you have a stable income that meets the stipulations, you’re going to need a down payment. Typically, subprime lenders require at least $1,000 or 10% of the vehicle’s selling price (sometimes whichever is less for you). You can also use a trade-in with equity to help meet the down payment requirement.
If you meet the minimum monthly income requirement, the DTI ratio, and have a down payment at the ready, you’re well on your way to being considered for a car loan. A few other common requirements of subprime lenders include:
- Proving your residency with a recent utility bill or bank statement
- Having a valid driver’s license (not expired, suspended, or revoked)
- Five to eight personal references with complete contact information
- Proof that you have a working contract or landline phone (no prepaid phones)
Gathering these proofs is half the battle of getting into your next auto loan. If you have other special circumstances, like if you were just discharged from bankruptcy, you may need to bring in additional items. Be frank and open with the special finance manager at the dealership – it can only speed the car buying process along.
Finding a Bad Credit Dealership
Having a fixed income and a lower credit score can make finding a lender that can work with you stressful. There are some subprime lenders that can help, but they aren’t available everywhere. That’s where we come in.
Here at The Car Connection, we have a network of dealers that are signed up with subprime lenders, and our connections span the whole country. To get matched to a dealership with the resources you need for your unique credit situation, simply fill out our free auto loan request form. It’s quick, secure, and there’s never an obligation, so get started now!