What high risk lenders will look for as far as income and expenses are concerned in determining if buyers with questionable credit will budget for an auto loan
Car shoppers that have experienced some type of problem credit will find that it’s not just income but an individual’s income after expenses that subprime auto lenders consider most important in determining whether or not they’ll qualify for an auto loan.
At Auto Credit Express we know this is the case because we’ve spent the last twenty years helping consumers with poor credit find those franchised new car dealers that can give them their best chances for approved car loans.
We even designed our website so that applicants could find answers to the most frequently-asked questions including getting financed for a car with bad credit – to which one of the answers is touched on with today’s topic: the budget requirements of higher risk auto lenders.
After receiving your application for auto created that was transmitted by the dealer (most of these lenders do not loan directly to customers), one of the first things a lender will do is determine your debt to income ratio (DTI).
You can, and should, do this beforehand yourself. Here’s how:
Begin by adding up all your regular monthly bills such as mortgage or rent payments, credit cards, other loan payments, average utility payments and anything else (student loans, child support, etc.).
Next, divide this amount by your gross monthly income (what you earn before taxes and other deductions are taken out). This will show you your monthly debt percentage. Most non-prime lenders will cap your total monthly debt (including a car payment plus car insurance) at 50% of your monthly gross income.
At the same time, these lenders will typically not want your car payment (including auto insurance) to exceed 15% of that same gross monthly income figure. This is called a payment-to-income (PTI) ratio.
For example, this means that for someone with a gross monthly income of $3,000, the combined car and insurance payment can’t exceed $450.
Since most lenders will assume a monthly payment of $100 for car insurance, this will leave that person with a budget of $350 (or less) for a monthly car payment.
When figuring your own vehicle budget, be sure to add in the additional expenses for gas as well as normal and unexpected maintenance costs – which brings up another issue.
If you are considering buying a used car that is out of its new car warranty period, not certified or is not covered by a used car service contract that covers the entire loan term, you should plan on setting money aside each month to cover the possibility of repairs.
By either purchasing a certified or buying a used car service contract you’ll be guarding against most unforeseen expenses caused by mechanical problems. Just be sure to shop around for pricing to be sure you’re being offered a fair deal.
As we see it
By understand the way lenders compute both DTI and PTI ratios, you can see for yourself if you meet the basic requirements and you’ll be that much closer to getting financed for a car with bad credit.
One more thing: if your credit is less than perfect we want you to know that at Auto Credit Express our specialty is helping these types of applicants find car dealers that can give them their best opportunities for car loan approvals.
So if you’re ready to reestablish your car credit, you can begin now by filling out our online car loans application.