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 bad credit car dealers and lenders use when determining an 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 typically consider these factors when determining if you're 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's hard to definitively say what constitutes a "subprime" or "bad" credit score. Your credit score and background largely determines if a certain lender can work with you, sets the amount you're approved for, and plays 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 to $2,000 before taxes.
- 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, this 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 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 45% to 50% or less. They also look at your payment to income (PTI) ratio. Most providers prefer that your potential payment is no more than 15% to 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 helps you build equity in the vehicle, reduces the total amount of interest charges you pay, and can also allow you to shorten the loan 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 legwork for you. Our process is simple.
When you team up with us, we'll do what we can to pair you with a car dealer in your area that can work with unique financial situations. Get started by filling out our online auto loan request form today!