What Income is Needed to Qualify for an Auto Loan?

Get Car Financing
Even with poor credit.

By

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.


, - December 7, 2017

When searching for a car loan, it’s important to budget for the additional monthly payment. Specific income requirements vary by lender, but there are other qualifications as well.

How Lenders Weigh Repayment Risks

Lenders qualify loan applicants in several ways. If the buyer has credit challenges, lenders typically require a gross monthly income of at least $1,500. They’ll also look at credit history to see how responsible a potential borrower has been.

If there’s a habitual trend – a history of late or missing payments – it may be difficult to convince lenders to help. On the other hand, lenders are often more accepting if a borrower’s credit troubles are situational – tied to a single unexpected event such as a divorce or health issue.

Two other things that factor into a lender’s decision are debt to income (DTI) and payment to income (PTI) ratios. These formulas help lenders ensure they’re putting as little financial strain on borrowers as possible.

Determining Debt and Payment Ratios

DTI compares current bills to monthly income. This determines if a borrower can comfortably take on an additional loan payment. Find DTI by adding up all monthly bills (including utilities, rent or mortgage, and credit cards) and dividing the total by pre-tax monthly income. Lenders typically cap DTI at 50 percent – including estimates of the new car and insurance payments.

PTI looks at the estimated monthly car and insurance payment compared to income to ensure the combined amount is within a person’s means. Find PTI by adding up an estimated car and insurance payment and dividing the total by pre-tax monthly income. Subprime lenders typically cap this at 15 to 20 percent of a borrower’s gross monthly income. Since insurance rates vary, lenders use $100 as a default amount.

Know the Numbers before Heading to a Dealer

Potential car buyers should calculate their DTI and PTI ratios before heading to a dealership to have an idea of what kind of monthly payment will fit their budget. Another good tip is to check all three credit reports ahead of time to eliminate surprises.

If you’ve done your homework and are ready to head to a dealership, don’t go just anywhere. Go to a special finance dealer that’s sure to have the lending resources that can help people with troubled credit. CarsDirect can point you toward a qualified local dealer, and getting started is simple. Fill out our online auto loan request form to take the first step!

Need a Car Loan?

It only takes a minute.

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.


Search New Cars by Loan Payment »

View estimated loan payments based on local rebates and financing offers.

Loan approval is not guaranteed and is subject to credit application and approval of the lender. Individual loan terms may vary. Use of this website constitutes acceptance of CarsDirect.com's Terms of Use, Disclaimer, Privacy Policy, and Cookie Policy.