When it comes to getting a bad credit car loan, there are many requirements that need to be met. One of the biggest factors is your ability to repay your auto loan, which is why there are income and employment requirements you need to meet. Lenders need to be confident that you have enough income, and that it's going to last for your entire loan term.
Your Ability to Repay an Auto Loan
Your ability to repay a car loan lies in both the total amount of income you have and the amount of income that's already being used by your bills. When it comes to bad credit, the lenders that can help you get an auto loan, called subprime lenders, have certain requirements that have to be met in both of these areas.
The first qualification you need to meet to be considered for vehicle financing is a minimum income requirement. This varies by lender, but they generally require that you make a minimum of around $1,500 to $2,000 a month from a single source of taxable income.
Lenders usually ask that you prove your earnings with at least 30 days of computer-generated check stubs showing year-to-date income. Once you prove your income, lenders do some quick calculations to ensure that you have enough money available each month to cover your loan payments. The calculation they use is called the debt to income ratio, or DTI ratio.
The DTI ratio compares your gross monthly income to the amount of income already taken up by bills. You can calculate this yourself by adding all your monthly bill payments up, and dividing the total by your pre-tax monthly income.
The result, once converted to a percentage, tells you how much of your income you're using. Lenders prefer you have more income available to work with, and if your DTI ratio is higher than 45% to 50%, you're not likely to be approved for bad credit financing.
Employment Plays a Key Role, Too
Not everyone's situation allows them to earn income in the same way, but in order to get a bad credit car loan, it helps if your income is from standard W-2 employment. This doesn't mean other forms of income aren't accepted in some cases, but it's easier to use earned income when you're trying to get an auto loan.
When it comes to employment, subprime lenders also require that your income used for the minimum monthly qualification comes from a single source. This doesn't mean you can't apply or qualify with multiple sources of income, it just means that at least one of those needs to meet the minimum income requirement all on its own.
For example, if you have two jobs, you must be able to prove that you meet the minimum pre-tax income requirement from only one of them. If you make $1,500 a month at one job and supplement your income with a second job, you're meeting the typical minimum monthly income requirement. However, if you make $1,500 a month total from two jobs, you're unable to meet the usual minimum income requirement, and may find it difficult to get approved for a car loan.
If you do meet the income requirements from a single source of income, it generally must also be taxable, and come from a job that you've had for at least six months to one year. The longer you've been employed with the same company, the better. Lenders typically require a minimum three-year employment history, with no gaps longer than 30 days between any job.
The employment requirements help to show lenders that you're in a stable enough situation to take on an auto loan, and the longer that stability has been in place, the more likely it is to continue, which increases your chances of getting approved for a car loan.
Finding Your Next Car Loan
Proving you have the ability and stability to take on an auto loan with your income and employment is only half the battle to getting a subprime car loan for bad credit. Lenders have additional requirements that have to be met, and you can read about those here.
If you're ready to find your next auto loan, simply fill out our fast and free car loan request form. Here at The Car Connection, we specialize in connecting consumers with less than perfect credit to local dealerships that are signed up with subprime lenders. Save yourself the hassle of searching for the right dealer on your own and get started with us right now!