The only way you can truly know if you can afford to buy a car with bad credit is by applying for a subprime auto loan at a special finance dealership. Only they can tell you what you can get approved for. Before you do this, you should look at your monthly income and do some calculations to get a better idea of what you can afford. This way, you can avoid overspending on a vehicle.
Income Requirements for Bad Credit Car Buyers
When you have bad credit, you’re most likely going to need to work with a subprime lender. These lenders specialize in bad credit car financing.
Each subprime lender has their own specific income requirements, but they generally ask that you make a minimum of $1,500 to $2,000 a month before taxes from one job. You can either be a regular W-2 employee, self-employed, or an independent contractor. As long as you’re able to prove you have the income, you shouldn’t have an issue meeting this requirement.
Regular W-2 employees should bring in a recent computer-generated pay stub showing year-to-date earnings to serve as proof of income. Self-employed persons and independent contractors should bring in a copy of their most recent tax returns (usually two to three years).
If you have more than one job, the lender isn’t going to consider the income from other jobs for the minimum requirement. However, they're going to consider when calculating your debt to income (DTI) and payment to income (PTI) ratios.
Your DTI ratio compares your monthly income to your monthly bills, including an estimated vehicle and insurance payment. To get approved, your DTI ratio typically needs to be 45 to 50% or less. To calculate this, add up all your monthly bills and divide the total by your pre-tax monthly income. For example, if you make $2,100 a month and your bills (including the car payment and insurance) add up to $800, your DTI ratio is 38%.
Your PTI ratio determines how much of a vehicle payment you can afford. The maximum PTI ratio subprime lenders accept is typically around 15 to 20%. To calculate this, take the estimated car payment and divide it by your pre-tax monthly income. For example, if you make $2,100 a month and had a $400 payment, your PTI ratio would be 19%.
Additional Requirements for Bad Credit Car Buyers
Now that you know what the income requirements are, what else do you need to qualify for a subprime auto loan? Again, the specifics vary, but subprime lenders usually ask that you meet these four additional requirements:
- Down payment – You almost always have to make a down payment with a bad credit car loan. How much you need to put down varies, but subprime lenders commonly ask for a minimum of $1,000 or 10% of the vehicle’s selling price, whichever is less.
- Proof of residency – They want to make sure the address listed on the application is where you live. Bring in a copy of a recent utility bill in your name listing the address on the application.
- Proof of a working phone – Lenders want to make sure they can contact you. Bring in a recent phone bill in your name. It can be a contract cell phone or a landline phone, but not a prepaid plan.
- List of personal references – Subprime lenders generally also ask you to provide a list of five to eight personal references. This needs to be complete with full names, addresses, and work and home phone numbers.
The Bottom Line
Income amount is just one of many requirements you need to meet in order to get approved for a bad credit auto loan. If you have low income, you can increase your approval odds by adding a co-borrower that's a spouse and combining incomes.
When you’re ready to get the car buying process started, Auto Credit Express is here for you. For over 20 years, we’ve been helping credit-challenged consumers find financing by connecting them to local dealers that have the proper lending resources.
All you have to do is complete our free, fast, and easy auto loan request form, and we’ll get right to work matching you to a dealership near you.