Requirements for Subprime Financing

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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.


, - October 3, 2017

When seeking an auto loan, car buyers with bad credit will typically need subprime financing. But the requirements a borrower needs to meet for a subprime loan differ from traditional lending.

Qualifying Requirements

Each subprime lender has different requirements. Typically, buyers with a 620 credit score or below will need special financing. Borrowers must be at least 18 years old, be a legal resident of the US, have a valid driver’s license, and earn a gross income of at least $1,500 per month.

Providing Proof

Subprime lenders also look at a borrower's ability and willingness to pay, and their stability in doing so.

Ability depends on more than income. Lenders don’t want borrowers to stretch budgets too thin. They use two calculations – the debt-to-income ratio and the payment-to-income ratio – to ensure applicants have the ability to repay a loan.

The debt-to-income ratio compares a borrower’s income to their total monthly debts. Lenders usually look for a DTI ratio of 50 percent or lower. The payment-to-income ratio combines a loan’s monthly payments with insurance premiums and then compares the total with a buyer’s monthly income. Typically, a PTI ratio of 20 percent or lower is acceptable.

Lenders also consider an applicant’s credit history for an overall view of how likely they are to repay a loan. Lenders will pay close attention to borrowers’ car loan histories as well.

For stability, lenders look at length of residence and employment history. They require proof of residence with a utility bill in the borrower’s name. Subprime lenders generally prefer applicants who’ve been at their current job for at least six months and can show a three year employment history. Borrowers must also show proof of a working phone and provide six to eight complete references.

Choosing a Vehicle

A dealer will provide a list of qualified vehicles from their inventory once a buyer is approved. Most subprime lenders require vehicles to be 10 years old or newer with no more than 100,000 miles, although this varies.

Finding Financing

If you find yourself in need of another vehicle, don’t let your credit stand in your way. At CarsDirect, we have an extensive network of special finance dealers who can help people in challenging credit situations. Let us connect you with a local dealership. Get started by filling out our auto loan request form today!

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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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