Just because you have a low income doesn’t mean you won’t qualify for a low income car loan. However, since there’s a minimum income required by lenders if you don’t have good credit, knowing what it is ahead of time can help you avoid wasting time.
Car Loan Income Requirement
When you have good credit, most lenders won’t even ask for proof of income – your credit score is enough for them to base an approval on. If they do ask, it may be to make sure you’re able to easily make the monthly payments. If you have bad credit, subprime lenders typically require a minimum pre-tax monthly income of $1,500 to $2,000, although the exact amount varies by lender.
In order to show proof of income, you generally need to bring in a copy of your most recent pay stub showing year-to-date income. If you’re self-employed, it’s a little more complicated. You typically need to bring copies of your last two or three years of tax returns. An important thing to remember: your qualifying income must come from a single source. You won’t be able to combine multiple income sources to fulfill the minimum income requirement, but having more than one income can help with debt to income (DTI) and payment to income (PTI) ratios.
Your DTI ratio is determined by taking the total of all your monthly bills and dividing it by your total pre-tax income. Lenders look for a DTI, including a car and insurance payment, that doesn’t exceed 45 to 50 percent of your total income. PTI shows how much of your income lenders allow for your combined car and insurance payment, and this is capped at 15 to 20 percent of your total monthly income.
Can You Qualify for a Car Loan with Low Income?
Regardless of whether you have good credit or not, you may find getting approved a challenge if you have low income and your DTI exceeds the requirement. If this is the case, one thing you can do before applying for a loan is save up for a large down payment.
Not only does a sizeable down payment reduce your interest expenses, it can improve both your DTI and PTI ratios to a point where there’s a good chance you may be able to get approved for a car loan if it’s large enough. Saving up for a down payment also gives you additional time to improve your credit before you begin the application process.
When You’re Ready to Buy a Car
When you’re ready to finance a car and have the available income to do so, Auto Credit Express can help get you started. We work with a network of dealers from coast to coast that are signed up with lenders who can with applicants in a wide range of credit situations.
It can be frustrating to figure out where to go, but with our help, you can be matched with a local dealer that’s right for you. There’s no obligation to buy, and our service is always free. Don’t hesitate any longer – fill out our auto loan request form to get started today!