There are income and employment requirements you need to meet to qualify for an auto loan. When you're struggling with credit issues, your best chance at qualifying for a car loan is through a subprime lender, and we have the inside scoop on what you need to prepare to meet standard income and employment requirements.
Income: The First Qualification for Financing a Car
The truth is that if you don't have steady income, you're probably not going to be approved for an auto loan. This doesn't mean you're out of options, but it does mean that having consistent W-2 employment is the first hurdle to get over when you need a car loan as a bad credit borrower.
Though specific amounts vary, most subprime lenders that can work with poor credit require you to meet an initial minimum monthly income amount. This is typically around $1,500 to $2,500 before taxes, and is required to be from a single source.
To prove this income, you're usually required to bring 30 to 60 days of check stubs into a dealership with you. These must be computer-generated, and show year-to-date income.
Is Your Income Already Spoken For?
The second thing lenders look for when you're being considered for an auto loan is whether or not enough of your income is available so you can comfortably make your loan payments and pay your other bills. Strange as it may sound, car lenders put several measures in place to make sure you can afford the vehicle you’re getting.
To see if you have enough available income, lenders do a simple calculation called a debt to income (DTI) ratio. This compares your monthly pre-tax income against your monthly bills, including an estimated auto loan and insurance payment. You can calculate this yourself, but you first need to estimate what you're planning to spend on a car payment and insurance.
You can find your approximate monthly payment by visiting online tools like our car loan payment calculator, and use $100 as an estimated auto insurance payment each month (that's what lenders typically do).
Once you have your estimated cost for a car loan payment and auto insurance, add this to all your other monthly bills, and then divide the total by your pre-tax monthly income. This amount, as a percentage, is how much of your income is currently being used. Lender's aren't likely to approve you for financing if your DTI ratio is more than 45% to 50% of your gross monthly income.
Employment History Shows Stability
If you meet all these requirements, then you've proven your ability to repay a car loan. However, lenders also want to make sure your income is going to last. A good indicator of this is your employment history and current job status.
If you've always bounced around from job to job, it may be harder to get approved for the financing you're looking for. Stability is a key factor in lending, and subprime lenders look to see that you've been at your current job for at least six months to one year. Additionally, you need to have at least three years of job history, with no large gaps in between employment.
Meeting Additional Lender Requirements
Your employment isn't the only thing lenders look at to consider the stability to take out a loan. In fact, subprime lenders look at several factors in addition to your credit score to help them get a full sense of your situation. That's why these lenders are able to help.
Besides your income and employment verification, lenders typically also require:
- A valid driver's license
- A utility bill in your name for your address
- A phone bill for a working landline or contract cell phone
- A list of five to eight personal references with complete information
- A minimum down payment, typically of $1,000 or 10% of the vehicle's selling price
Now you know there's more than just income and employment requirements for getting an auto loan and you can begin preparing for your next car. When you're ready to take on an auto loan, Auto Credit Express wants to help!
Finding Your Dealership
We've pulled together a network of special finance dealerships all across the country that are ready to work with people with less than perfect credit! These dealers are signed up with subprime lenders that can help people in many different credit situations, including bad credit, no credit, and bankruptcy.
Save yourself time and hassle of the search by filling out our car loan request form, and we'll get to work matching you with a dealership in your area. The process is fast and obligation-free, so get started now! Your next auto loan could be just a few clicks away!