Income Requirements for Bad Credit Car Loans

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - June 1, 2020

When you need an auto loan and are struggling with your credit, there are often lenders available to help, but you need to meet their qualifications in order to be considered for approval. One of the biggest determining factors in your ability to qualify for a bad credit car loan is your income, and we're here to show you what you need to meet this requirement.

Basic Income Requirements

It makes sense that you can't qualify for an auto loan if you don't make enough each month to pay it back. So, in order to qualify for a car loan, you need to meet a lender’s minimum income requirements. Specific amounts vary, but most subprime lenders have similar guidelines you need to meet to get a bad credit auto loan.

Typically, this means having a minimum pre-tax monthly income of around $1,500 to $2,000 from a single source. Lenders prefer income from W-2 employment, and require you to prove it with a recent computer-generated check stub showing year-to-date earnings. It's best to get this documentation ahead of time, because you're going to need to bring it with other information to a dealership in order to prove the information on your credit application.

Beyond Basic Income

It's not enough to just prove that you have the income, though. Lenders also check two additional calculations: your debt to income (DTI) and payment to income (PTI) ratios.

These calculations show a lender how much available income you have, and how much of your income can be used to pay for your auto loan and insurance. These calculations are simple to do, and can help you create a car buying budget.

Calculating Your DTI Ratio

The DTI ratio shows a lender how much of your income is already being used by your current bills. To calculate this, add up all your monthly bills and divide the total by your pre-tax monthly income. The answer you get, when converted to a percentage, shows how much monthly income you have available after your monthly bills are accounted for.

Lenders don't want you to go broke paying for a car, so they set a cap on how much income you must have available. Though the DTI ratio cap can vary, it's typically set at 45% to 50%. This means that if your debts already require this much of your income or more, you're not likely to be approved for financing.

Calculating Your PTI Ratio

Your payment to income ratio lets a lender know how much of your income is going to be used for a combined auto loan and insurance payment. Like the DTI ratio, lenders put a cap on this amount. For borrowers with poor credit, lenders generally don't approve a car loan if the payment and auto insurance combined use more than 15% to 20% of your income.

Because your PTI ratio is for both your loan and your insurance, lenders usually estimate an insurance payment of $100 a month when doing this calculation. You need to take that into account when you're budgeting, even though your insurance could be more or less.

To calculate your PTI ratio, you can give yourself an estimated payment range based on the lender's caps. For a payment range, simply multiply your pre-tax income by 0.20 instead. This gives you an estimated amount for the maximum monthly payment you can have for a car loan and insurance.

If you know how much you want to spend on a vehicle each month, you can use that amount, plus your estimated insurance cost, and divide that total by your pre-tax income to see if the payment you have in mind fits within the lender's PTI ratio cap. Keep in mind, however, that the caps are your payment limits, and the lower your PTI ratio, the better.

Are You Ready to Find Financing?

Now that you know what a lender is looking for, you're well on your way to creating a budget for your next auto loan. Remember, though, that lenders look at more than just your ability to repay a loan – so be ready to prove your financial and residential stability, and come prepared to kick off your vehicle financing with a down payment!

Once you're ready to get your next car loan, let CarsDirect be your guide. We not only have the auto financing advice and resources you need, but we work with a nationwide network of special finance dealerships that have lenders available to help, as well. The process is easy to get started, and there's never any cost or obligation. Simply fill out our car loan request form, and we'll get to work matching you with a local dealer!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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