Proving you have a stable income and employment are keystones to meeting eligibility requirements for a bad credit car loan. However, not everyone’s employment is exactly the same, so let’s go over the types and what bad credit lenders expect.
Income Types and Bad Credit Car Loans
When you have credit that’s worse for wear, you may need to apply for vehicle financing with a subprime lender. They specialize in bad credit car loans and are equipped to handle many unique credit situations. These lenders consider your income source and work history before they approve you for an auto loan, so your income source can matter to your overall eligibility.
Two of the most common and accepted forms of income for a bad credit auto loan include:
- W-2 income – Common income type. An employee that gets their income from an employer.
- 1099 income – Also a common income source, this covers workers that are self-employed, do freelance work, or contract laborers.
Both types of income may be accepted by bad credit auto lenders, but W-2 income is usually preferred since wages can be proven more easily. W-2 employees must prove their income with computer-generated check stubs showing year-to-date earnings. Proving a 1099 income type generally requires two to three years of tax returns.
Some lenders might not accept 1099 income at all, and some lenders may accept additional forms of income such as child support or alimony, but it all depends on the lender’s stipulations.
Meeting Income and Debt to Income Requirements
Most subprime lenders require around $1,500 to $2,500 of monthly minimum income before taxes, from one source. Your primary source of income is what’s used to meet the income requirement for a car loan. Any additional income sources, like a second job, could help you meet debt to income (DTI) ratio requirements though!
Many lenders accept multiple income sources outside of your primary one as additional income to help you meet debt to income (DTI) ratio requirements such as:
- A second job
- Child support
- Social Security
- Permanent disability
Your DTI ratio is how much of your income is being used to pay for your monthly bills, such as rent and other loans. If you meet the initial income requirement, but too much of your income is being eaten up by other expenses, you could be turned down for vehicle financing.
Be sure to tell your lender about all your income sources, because they can have an impact. If your regular job pays for the majority of your monthly expenses, and you have another income source available to pay for vehicle expenses, it could mean the difference between an approval and a denial.
Work History and Stability
Proving you have a steady income is only one piece of the auto-loan-eligibility puzzle. You must show that you have employment stability and that you’re likely to receive this income for the entire auto loan term.
Car loans typically last between four and eight years, and a lot can happen in that time. The longer you’re in the same line of work or with the same employer, the higher your chances of getting approved for vehicle financing.
Subprime lenders typically require that you’ve had your current job for around six months to one year, and have a steady work history of at least three years. “Steady” meaning no large gaps longer than 30 days between jobs.
Additional sources of income that can’t be proven with check stubs typically need to be supported by an award letter, bank statements proving you’re receiving the income, and proof that you're receiving it for the duration of the car loan you’re applying for.
Temporary income, such as unemployment. which usually only lasts for up to six months, can’t be submitted as proof of income for vehicle financing. You may make enough now to qualify for financing, but lenders also consider how much income you should have for the next few years – at least until the end of the loan term.
Are You Ready for a Bad Credit Car Loan?
Bad credit can really take a toll when you’re searching for a car loan. Many lenders can turn you down for financing simply because your credit score is low, even when you have acceptable income. However, subprime lenders are able and willing to assist borrowers in many different circumstances and we want to help you find them.
Subprime lenders are signed up with special finance dealerships, but how do you tell which dealers have these resources? We’ve got you covered at Auto Credit Express!
Thanks to our nationwide network of special finance dealerships you can skip the search and get matched to a dealer by completing our free auto loan request form. We’ll look for a dealership in your local area at no cost, no-obligation, and our form only takes about three minutes to complete.