How Much Car Can I Afford With Poor Credit?

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Even with poor credit.

By

Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - July 27, 2021

If you apply for a car loan with a subprime lender, your individual situation determines how much car you can afford. Subprime lenders assist borrowers with less than stellar credit, and we can offer you some guidance on searching for an affordable vehicle with bad credit.

Buying a Car With Poor Credit

If you’re wondering what loan amount you can qualify for with poor credit, it can be tough to say without applying with a lender. However, we can tell you that bad credit borrowers who use our dealership network finance an average of $23,842, with an average interest rate of 13.16%.

As a bad credit borrower, you may have to set your sights on a gently used vehicle, or a certified pre-owned (CPO) car. That’s not to say you can’t finance a brand new vehicle with poor credit – it’s certainly possible if you can find the right lender and the right price – but bad credit typically means only qualifying for lower loan amounts that may not be high enough to afford a new car.

Brand new vehicle prices have been upwards of $40,000 in recent years, which may be out of reach for those with poor credit. Again, not impossible, but it may be tough to qualify for – even if you have enough income to afford the payments.

When you apply for an auto loan with less than stellar credit, depending on what’s on your credit reports, a lender may view your credit score as “high risk.” A lender may be wary of your ability to repay the car loan on time, and a higher loan balance means more risk. Typically, the higher the loan balance, the longer the loan term and car payment. A long loan term and a high car payment could lead to default if it stretches your budget to the max – and a lender wants to avoid default at all costs.

If you want a better chance of getting approved for a car loan with poor credit, then start with choosing a vehicle that’s affordable. But what is “affordable” in lender terms? Turns out, there’s a way you can calculate a lender’s version of affordable.

What “Affordable” Means to an Auto Lender

Your definition of affordable is likely to be different to the person next to you, but when it comes to vehicle financing, lenders typically have similar standards for how much car you can really afford.

There are two main calculations that auto lenders use to determine how much car payment you can take on, and how much debt you can take on with your other obligations factored in. They’re called your payment to income (PTI) ratio, and your debt to income (DTI) ratio.

Your PTI ratio is your projected monthly car payment and insurance premium divided by your monthly income. Lenders usually estimate your monthly insurance premium to be $100. If these vehicle expenses make up more than 15% of your monthly gross income, then you may not qualify for a loan for that specific car.

Your DTI ratio is your monthly loan obligations and projected vehicle expenses divided by your monthly gross income. If all of your monthly loan payments are less than 45% to 50% of your monthly gross income, then you’re typically within an acceptable range for a car loan.

As you can see, affordable doesn’t mean “cheap” to an auto lender, and it doesn’t have to mean that to you either. Affordable comes down to what you can comfortably pay each month. If you have a specific vehicle in mind, and it’s pushing your PTI and DTI ratios to their limits, then it may be a good idea to save some money for a down payment to get a lower monthly payment to increase the chances of getting the car you want.

The Bad Credit Financing Process

If you’re shopping for a vehicle and apply for a car loan with a subprime lender signed up with a special finance dealership, then your monthly car payment is determined before you choose a car.

Subprime auto loans start with you giving your proofs and documents to the special finance manager at the dealership, and they send those items along to the subprime lender. If you qualify for an auto loan, the lender sends back your payment call, which is the maximum monthly car payment you qualify for. With that in hand, you choose a vehicle that fits your loan perimeters and your needs.

Many borrowers think of car buying as choosing the vehicle first, then finding financing. But with worse-than-perfect credit, it’s the other way around when working with a special finance dealership.

Finding a Dealership With Bad Credit Options

Sometimes the hardest part of getting a vehicle with poor credit is finding a dealership that’s signed up with bad credit auto lenders. It’s not always easy to find a dealer with the connections you need, but here at CarsDirect, we want to make your search easier with our nationwide connections.

Over the last two decades, we’ve created a coast-to-coast network of special finance dealerships and we want to connect you to one in your local area. Fill out our quick and free car loan request form, and we’ll get right to work finding a dealer for you.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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