Consumer Car Buying Advice Blog

There are certain basic loan requirements that consumers need to be aware of if they are contemplating applying for a bad credit car loan.

How we know

At Auto Credit Express we’ve spent the past 20 years working with consumers who have bad credit and helping many of our applicants raise their FICO scores and reestablish their car credit by financing a vehicle with a bad credit auto loan. During this time, we’ve worked in retail dealerships as special finance managers, trained car dealers to do special finance and developed web sites that match up applicants with car dealers all over the U.S. and Canada that specialize in bad credit car loans and are signed up with the wide spectrum of lenders necessary to run a successful special finance department.

The loan process

Before they apply, we try to educate our applicants on the bad credit loan process, since a bad decision at the outset can potentially lead to submitting a credit application that will be rejected.

We get questions, too

As part of our web site, we encourage applicants to either email us or call us if they have any additional questions that our web site hasn’t answered. One of the most frequently asked questions our customer service department receives is “will I qualify for a car loan if …?” Because there are so many possible scenarios, it would be impossible to list them all, so here we’ll address a few of the major ones.

Keep in mind that in our database we have over a hundred subprime lenders, each with an average of 5 lending programs. With over 500 total programs, there should be a program for almost every credit situation.

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

FICO Score Requirements

Most lending programs take into account your credit bureau score; the higher your credit score, the better. Lenders that incorporate the credit bureau score in their approval formula usually have a lower cut off point at around 525. If your score is less than 525, it is still possible to get approved for an auto loan with a lender that doesn’t use the credit bureau score as part of their formula.

Job Time Requirements

Many bad credit auto lenders look for at least one year on the job. If an applicant does not have a full year on the job, most lenders prefer three years of continuous employment (preferably in the same field of work) with only two to three different employers during that time period.

Income Requirements

Minimum income requirements vary widely by lender and loan program. Most lenders, however, would prefer that applicants earn close to $2,000 per month gross (before taxes) income. At the same time, there are still several programs with lower income requirements.

Debt Ratio (DTI) Requirements

To calculate your debt ratio (called “debt to income” or DTI), take all your bills, including your new car payment, and divide the total by your total pre-tax income. Most bad credit auto loan lenders prefer a maximum DTI ratio of between 40 and 50 percent.

Payment to Income Ratio (PTI) Requirements

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

Loan to Value (LTV) Requirements

To calculate the vehicle’s Loan to Value, divide the amount you plan on financing by the wholesale book value of the vehicle (if you live in the western U.S. use Kelley Blue Book and if you live in the central or eastern U.S. use the NADA book). Most bad credit lenders prefer an LTV that is under 120 percent. At the same time, most of these same lenders will allow a higher LTV amount if you choose to finance a service contract or GAP insurance.

Down Payment Requirements

In the current economy, most subprime auto lenders are requiring some form of down payment, either in the form of cash or in the form of equity in a trade-in vehicle. If you have no money down or nothing to trade in, there are a handful of programs available (although these applicants will have to demonstrate a strong position in the other requirements).

Automatic Rejections

There are a number of things that can cause a lender to automatically reject your application. Although these situations vary by lender and are not automatic rejections by all lenders, here is a short list of these rejections for some lenders:

• Currently in credit counseling
• A dismissed bankruptcy
• Multiple repossessions
• Multiple bankruptcies
• Past due child support
• Excessive tax liens

As we see it

Keep in mind that all lenders are not the same. If you don’t meet all the criteria mentioned above, there is still a good chance that you may qualify for numerous lending programs.

For over twenty years Auto Credit Express has been helping people with credit problems get approved for new and used car loans. Since our inception, we have processed over 2,000,000 online bad credit auto loans and our dealers have closed over 1 billion dollars in auto loans.

For more information, please visit www.autocreditexpress.com to see what we can do for you.

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