Seattle isn’t a cheap city to live in, and it isn’t easy finding car financing when you have poor credit on top of being on a budget. The good news is that there are lenders in and around the Seattle area that can help you get the financing you need, but you have to make sure you properly budget ahead of time.
Budgeting for a Car Loan in Seattle
Before you head to a dealership in Seattle and search for the right vehicle, you need to have a budget set in stone. Ideally, you don’t want your auto loan payment to exceed 15 percent of your pre-tax monthly income, according to most subprime lenders, but the lower the better. For example, if you make $2,000 a month, you should be considering a monthly payment that’s around $300 or less.
When you buy a car with bad credit, the lender is going to calculate your payment to income (PTI) and debt to income (DTI) ratios. Your PTI ratio is the percentage of your income that an auto loan payment takes up, and your DTI ratio determines your risk level by looking at the monthly debt you already have.
To calculate your PTI ratio, take your monthly pre-tax income and multiply it by 0.15 and 0.20 . This gives you an idea on your monthly payment range, so you can determine how low and how high you can go. Using the example above with $2,000 of monthly income, your maximum payment range should be anywhere from $300 (15 percent) and $400 (20 percent). Again, 15 and 20 percent are the maximum amount subprime lenders typically accept, and aiming lower is always going to be better on your wallet.
The lower your DTI ratio, the better chance you have of getting approved. To calculate your DTI ratio, add up all of your monthly bills, include your estimated car payment and auto insurance, and divide it by your pre-tax income. Using the same numbers, let’s say your monthly bills – including an estimated car and insurance payment – add up to $600. Take that amount and divide it by $2,000, and your DTI ratio is 30 percent. Subprime lenders generally say the maximum your DTI ratio can be is 45 to 50 percent, but this can vary.
Other Car Expenses to Consider
While it’s important you calculate your PTI and DTI ratios, you need to consider other costs of owning a vehicle, including fuel, maintenance, and insurance. Seattle and the State of Washington consistently have some of the highest gas prices in the US, and if you don’t account for how often you plan on filling up your tank, you could be in trouble.
On the flip side, Washington state has an average monthly auto insurance rate of $73, and an average annual car insurance cost of $872 in 2019, according to ValuePenguin. Your insurance may not be as expensive as in other states on average, but this is just one part of the total cost of buying a vehicle.
Find a Dealership in Seattle through Auto Credit Express
Now that you have an idea on how to budget for a bad credit auto loan, where do you go to get the financing you need? At Auto Credit Express, we can be your guiding light.
For over 20 years, we’ve been helping buyers in Seattle and the State of Washington find financing by connecting them to local dealers that specialize in bad credit car loans.
To get started, fill out our simple and fast auto loan request form, and we’ll get right to work connecting you to a dealership near you!