Consumer Car Buying Advice Blog

Here are some of the basic qualifications for many bad credit car loans

The basics

Here at Auto Credit Express, one of the most frequently asked questions our customer service department receives is “what does it take and will I qualify for a car loan if ….”

Realistically, everyone’s situation is different, which means that there are so many possible scenarios that it would be impossible to list them all here so we will address some of the major ones.

Lenders

In our current database we have nearly 100 subprime auto lenders with each having an average of 5 lending programs. With close to 500 programs in total, it therefore follows that there should be a program for almost every credit situation.

The major factors lenders consider when you apply for a car loan are:

Credit score

Most lending programs take into account your credit bureau score; the higher the score the better the terms of the loan. Lenders that incorporate the credit bureau score in their approval formula usually cut off at around a 525 FICO score. Note: If your credit score is less than 525, it is still possible to get approved for an auto loan with a lender that does not use the credit bureau score in their formula.

Time on the job

Many subprime car lenders look for at least one year on the job. If a consumer does not have a year on the job, most lenders prefer three years of continuous employment with a maximum of 2 to 3 employers during that time period.

Income

Income requirements vary widely depending upon the auto loan program, although recent economic conditions have led to many lenders raising their minimum requirements. Most lenders at this time prefer a minimum of at least $2,000 per month gross income (that is, your income before taxes). There are a few programs out there with lower income requirements.

Debt ratio (DTI) or debt-to-income

To calculate your debt-to-income ratio, take all your bills, including your new car payment, and divide it by your total pre-tax income. Most lenders prefer a maximum DTI ratio between 40 and 50 percent.

Payment-to-income ratio (PTI)

To calculate the payment-to-income-ratio, divide your new car payment by your pre-tax (gross monthly) income. Most lenders prefer a maximum PTI ratio of between 15 and 20 percent of your gross monthly income.

Loan to value (LTV)

To calculate the loan to value ratio, divide the amount you plan on financing by the wholesale book value of the vehicle. If you live in the western United States, you’ll need to use Kelley Blue Book, if you live in the central or eastern United States, you’ll want to use the NADA car value. Most lenders prefer an LTV of under 120 percent. Many bad credit car lenders will allow you to exceed their LTV threshold if you plan on adding a service contract or GAP insurance to the finance contract.

Down payment

Most subprime lenders require some form of customer down payment (even over and above dealer cash or rebates if you are financing a new car). If you have no money down and nothing to trade in there are a handful of programs available.

Approval eliminators

Also called automatic rejections, the reasons for this action will vary by lender. We have listed some below. I should note that these are not automatic rejections for all lenders; they are merely automatic rejections for some lenders and can happen because an applicant:

•    Is currently in credit counseling
•    Has a dismissed bankruptcy
•    Has had multiple vehicle repossessions
•    Has experienced multiple bankruptcies
•    Has past due child support
•    Has excessive tax liens

It should be stressed that at this time that all lenders are not the same. If you do not meet all the criteria mentioned above, there is still a good chance that you could very well qualify for numerous lending programs.

Additional information

For more information about subprime car loans, feel free to visit our web site at www.autocreditexpress.com. Once there, you’ll find calculators to help you determine your budget as well as a loan resource center that can help answer your questions. If you need additional assistance, our toll free number is listed at the bottom of every page and, during normal business hours, it will connect you with one of our knowledgeable customer service representatives.

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