The income requirements for a bad credit auto loan are different from a conventional car loan, but we’re here to guide you through it. Here’s what to expect before heading to a special financing dealership.
Bad Credit Auto Loans and the Requirements
Many lenders can be hesitant to approve bad credit borrowers, but dealership special finance departments know that people are more than just a credit score. However, to be considered for a bad credit auto loan, you need to provide a number of items to the subprime lender.
Using your income, work and residence history, and a down payment, subprime lenders look at much more than your credit score for approval. Bad credit lenders determine how much car you can afford based on the information you give them, and then you work with the dealer to find a vehicle in their inventory that fits your needs and budget.
Income Requirements for a Subprime Car Loan
Bad credit lenders look at your monthly income before taxes, or gross pay, in order to consider you for an auto loan. Gross pay is different from your net income, which is your take-home pay after taxes.
When filling out a credit application for special financing, be sure to double-check the amount you’re listing. Entering your net pay instead of gross pay could mean the difference between a rejection and an approval.
The gross income requirement for a bad credit car loan is typically a minimum of $1,500 to $2,000 a month. This income needs to be taxable – meaning tips or side hustles that aren’t being reported won’t count. If you’re a server, driver, or any other profession that relies on tips, be sure you’re reporting them.
Your income also needs to be proven with computer-generated check stubs that state your year-to-date income.
Your Income and Work History
Just meeting the income requirements may not be enough as a bad credit borrower – you need to have enough income available, as well. Lenders determine how much of your income is available by calculating your debt to income (DTI) ratio. This ratio refers to how much debt you have compared to how much income you’re bringing in.
Lenders have DTI caps, meaning they won’t approve you if you need too much of your income to pay bills. When subprime lenders calculate your DTI to consider you for approval, they include a car and insurance payment in the calculation. If your DTI exceeds 45% to 50%, bad credit lenders generally won’t approve you for an auto loan. Not only does your income have to meet the minimum requirements, it also can’t be mostly tied up paying other expenses.
If you have two or more jobs, subprime lenders usually only accept your primary income for the minimum income requirement, but your other income could be used to lower your DTI. Additional income could include social security, disability, child support, and alimony – and it must last for the entire loan term in order to be considered.
Additionally, subprime lenders usually require bad credit borrowers to be on their job for at least one year, with a three-year consistent work history. Consistent meaning no gaps longer than 30 days between jobs.
Finding a Dealer With Special Financing
What we’ve discussed concerning income requirements is common among subprime lenders, but every lender is different, so ask questions about their specific income and DTI rules. Be prepared to prove any income with check stubs, and some lenders may ask for a few – so keep them handy while you’re preparing for an auto loan.
Finding a dealership that can work with bad credit borrowers can seem daunting, but we can help. At The Car Connection, we can connect you to a dealer near you with special financing.
If you’re ready to start car shopping, and find a dealership in your local area that may be able to help with your unique credit situation, simply complete our custom, free, and easy auto loan request form.