It can be hard trying to get approved for an auto loan with bad, thin or no credit. You therefore need to be aware of the major factors that dealers and lenders use when determining auto loan approval.
Factors Lenders Use to Determine Auto Loan Approval
At Auto Credit Express, we work with the largest selection of bad credit car dealers in the country. We are experts in the subprime segment and know exactly what these dealers and lenders are looking for in an applicant. While there are no nationwide requirements or standards, we know they will consider these factors when determining if you are approved or not:
- Credit Score and History. Lenders decide their own acceptable level of risk they are willing to take on. Because it varies, it is hard to definitively say what constitutes a "subprime" or "bad" credit score. Your credit background will determine if a certain lender will work with you, set the amount you're approved for, and play a factor in determining your interest rate.
- Income. These providers understand that your credit score is most likely not where you want it to be. That's why they put added importance on your income. Income requirements vary across each program, but we strongly suggest that you have a monthly income of at least $1,500 pre-tax.
- Time on the Job. When trying to extend bad credit loans, lenders look for stability anywhere they can. A stable employment situation shows that your income is steady and that you have the ability to pay back the loan. As a result, applicants who've been at their current job for at least one year are viewed more favorably. If that isn't the case for you, that doesn't mean your application is dead on arrival. It just means that you may have to explain your situation when given the opportunity.
- Debt-to-Income (DTI) Ratio. Lenders and dealers will look at your debt-to-income ratio. To calculate your DTI ratio, add up all of your monthly bills and divide that number by your monthly pre-tax income. After factoring in a potential car payment, most lenders and dealers prefer to see your DTI ratio at 50% or less. They'll also look at your payment-to-income (PTI) ratio. Most providers prefer that your potential car payment is no more than 15-20% of your income.
- Down Payment. Most bad credit auto loan programs require some form of a down payment. This can be in the form of cash, equity in a trade in, or a combination of the two. If you don't have one, many of the available lenders will be unable or unwilling to work with you. A down payment is very important for the success of your loan. Paying money down gives you equity in the vehicle, reduces the total amount of interest you'll pay, and can also shorten the term.
What We Suggest
Instead of wasting your time trying to figure out which dealer offers which programs, you should let Auto Credit Express do the leg work for you. Our process is simple. After you apply with us, we'll do what we can to pair you with a car dealer in your local area that will be able to work with your unique financial situation. Get started by filling out our online application today.