Subprime lenders offer bad credit auto loans, but they have rules about the age and mileage of the vehicles they're willing to finance, as well as minimum and maximum loan amounts they accept. This likely means you won't be able to finance a 10-year-old car if you have bad credit, but you may be surprised by what you can finance.
What Are the Vehicle Requirements for Bad Credit Auto Loans?
It’s tough to lay down specifics because each lender has different rules when offering bad credit auto loans. However, we can say that you can expect subprime lenders to share these three requirements:
- Vehicle age limit – Subprime lenders have a maximum age for cars they finance. Generally, they won't finance vehicles that are over 10 years old, but this cap varies by lender. If you have bad credit and want to finance a 10-year-old car, you're going to want to ask the dealer about their age restrictions ahead of time.
- Vehicle mileage limit – Bad credit lenders also set limits on the amount of miles a car can have. They typically only accept vehicles with less than 100,000 miles on the odometer, but, once again, this varies from lender to lender.
- Minimum and maximum loan amount – Subprime lenders also set both a minimum and maximum loan amount they accept. The usual minimum amount you can finance is $5,000, while the maximum loan amount is around $30,000. Don't get the loan amount confused with the selling price. The vehicle you choose could cost less than $5,000 and you could still get approved as long as the total amount being financed tops the minimum after taxes, fees, and any other add-ons.
How to Budget for a Bad Credit Car Loan
Now that you know what the general car limitations are, this can help as you set up your budget for a bad credit auto loan. To properly budget, you need to know if you have enough available income to qualify by calculating your debt to income (DTI) and payment to income (PTI) ratios.
The DTI ratio compares your monthly bills to your monthly income. Subprime lenders only approve applicants if their DTI ratio is around 45% to 50% or lower. To find yours, add up all your monthly bills, including an estimated vehicle and insurance payment (which you can calculate with our Monthly Payment Calculator). Then, take the sum and divide it by your pre-tax monthly income.
Your PTI ratio, on the other hand, tells you how much of your income is dedicated to a monthly payment. Subprime lenders set their maximum acceptable PTI ratio around 15% to 20% or lower. To calculate this, multiply your pre-tax monthly income by 0.15 and then by 0.20 (20%); the resulting range is the maximum amount your monthly payment could be where you can still expect to get approved with a subprime lender, but the lower you aim, the better off you'll be.
Finally, you should also be aware that a down payment is typically required when taking out a bad credit auto loan. Down payment requirements also vary, but subprime lenders usually ask for $1,000 or 10% of the car’s selling price, whichever is less.
Auto Credit Express Tip: We recommend that you make the largest down payment you comfortably can afford if you have bad credit. A larger down payment can help offset the higher interest rate that comes with a bad credit auto loan. This is because putting money down lowers the amount you have to borrow, which reduces the total amount of interest charges you pay over the loan term.
Ready to Finance Your Next Car?
You may not be able to finance a 10-year-old car with bad credit, but you can still get approved for a car loan if you work with the right dealership. Auto Credit Express is here to help you find one near you.
We're teamed up with a nationwide network of special finance dealers who work with subprime lenders. Let us get you connected with a local dealership. Get started with our simple, no-obligation auto loan request form right now!