Getting a car loan quote from multiple lenders allows you to shop around for interest rates and loan terms, but you may not be able to do this if you have bad credit.
Rate Shopping for a Car Loan Quote
The process of rate shopping for an auto loan allows you to see what different lenders are willing to offer, sometimes without it affecting your credit. This is a great way for buyers to get a car loan quote from different sources.
Rate shopping involves applying with several financial institutions in a short period of time. You can get pre-approved to see the terms different lenders can offer so you can choose the financing that works best for you. If you do this in a short period of time (usually 14 to up to 45 days), the credit bureaus will count all of your applications as just one hard inquiry on your credit reports.
If you have the opportunity, shopping around for a car loan this way is a great idea. You can find the best deal available to you and head to a dealership knowing exactly what you can spend on your car. However, this may not be possible for car buyers with bad credit.
Only certain lenders are willing to finance borrowers with poor credit. Rate shopping could lead to wasted time if most lenders you approach won't approve you for a loan. It can be tough getting a car loan quote with bad credit for this reason.
Bad Credit Car Loan Quote
While bad credit car buyers may have trouble rate shopping with different lenders, they can estimate the monthly payment they’ll qualify for by using the same calculations subprime lenders use.
Your income and your monthly bills play a big role in deciding the monthly payment you qualify for. Auto lenders use two different calculations to help them with this: the debt to income (DTI) ratio and payment to income (PTI) ratio. By doing these problems on your own, you can create a makeshift car loan quote yourself.
The DTI ratio is found by dividing your monthly bills (including the estimated car and insurance payments) by your monthly income before taxes are taken out. Subprime lenders typically won't approve borrowers when their DTI is over 45 to 50 percent. So, crunch these numbers for yourself to see how much of a car payment fits your budget.
Here's an example: Let's say you make $3,000 a month before taxes, and your monthly bills add up to $1,000. This gives you a DTI ratio of 33.33 percent before the car loan is factored in. Here, your combined car and insurance payments couldn't exceed $500, as anything beyond that would push your DTI over 50 percent.
Lenders calculate your PTI ratio by dividing estimated monthly car and insurance payments by pre-tax monthly income. By the rule of most subprime lenders, your PTI can't exceed 15 to 20 percent.
This helps you get a better idea of the price range of vehicles you should be shopping in. For example, if you made $3,000 a month, the combined total of your car and insurance payments typically can't top $600, which would be 20 percent.
Let's say you want to aim for a $350 monthly car payment so it comfortably fits your budget. You can then multiply $350 by the number of months you want to finance for to get an estimated car loan quote. If you wanted to take out a 60-month loan, that comes out to $21,000.
By doing these calculations, you create a personal car loan quote that fits your budget and the income restrictions of subprime lenders.
Successful Bad Credit Financing
Planning out your budget for an auto loan helps make sure you have everything accounted for and are ready to take on financing. Plus, you can create a car loan quote for yourself to get a better idea of what you can comfortably afford. This should make it easier to make all the car loan payments on time and improve your credit.
Finding a lender that can finance you when you're dealing with credit problems can be an issue. Auto Credit Express wants to help make that easier with our free and secure service. We match car buyers to dealerships in their area that are teamed up with subprime lenders. Take a moment to start the process by filling out our auto loan request form right now.