You can typically expect to need a minimum income of $1,500 to $2,000 a month in order to get approved for a bad credit car loan, but this isn't the only income requirement to be aware of.
Minimum Income for a Car Loan
Bad credit auto lenders use your income as a major factor when you apply for a car loan. As a way of verifying you make enough to afford a car payment, subprime lenders require a certain minimum income.
In our experience, the minimum income requirement typically ranges from $1,500 to $2,000 a month before taxes. Granted, this varies from lender to lender and there may even be programs with lower income requirements.
There are a few other things to keep in mind when it comes to your income:
- This is your gross income, or what you make before taxes and deductions get taken out.
- Lenders want to see W-2 income, so being self-employed or making unearned income introduces a different set of rules to qualify.
- You have to meet the minimum income amount with earnings from a single job – you can't combine earnings from a second or third job or additional sources of income.
- Bad credit lenders require proof of income, typically with a computer-generated pay stub that lists your year-to-date earnings from the past 30 days, or multiple years of tax returns.
Other Car Loan Income Requirements
In addition to a certain level of income, subprime lenders require you to meet their debt to income and payment to income ratio requirements. These two lesser known income requirements help make sure a car payment fits into your budget.
Debt to Income Ratio
The debt to income (DTI) ratio calculates how much of your income is dedicated to your monthly bills. Subprime lenders typically require that your DTI ratio isn't higher than 50 percent of your gross monthly income (though this will vary by lender).
Because lenders are going to do it the second they get your application, it makes sense for you to calculate your DTI ratio as you prepare for your auto loan. To find it, add up all of your monthly bills, including your rent or mortgage payment, other loan payments, minimum credit card payments, and any other recurring payment that shows up on your credit reports. Next, divide that total by your gross monthly income to get your DTI ratio.
For example, if you made $3,000 a month gross and your monthly bills added up to $1,100, you would divide 1,100 by 3,000 and get 0.366, or 36.6 percent. This would fall into the acceptable DTI range for almost all subprime lenders. However, keep in mind that they also factor a car payment and insurance payment into your DTI and still want it below 50 percent.
Payment to Income Ratio
A second calculation lenders use is the payment to income (PTI) ratio, which can be found by dividing your combined car and insurance payment by your pre-tax monthly income. Subprime lenders usually set a maximum PTI of 15 to 20 percent, though it again can vary. Simply put, lenders don't want these expenses to eat up too much of your total income to make sure you can afford the vehicle.
You can calculate your PTI ratio, but you'll have to estimate the car and insurance payments. This can give you a better idea of the price range of vehicles you should be looking at.
How to Qualify for a Car Loan with Low Income
When you have bad credit and need an auto loan, you can expect to have to meet minimum income, debt to income ratio, and payment to income ratio requirements.
Auto Credit Express is here to help if your credit is making it difficult to get approved for a car loan. We work with car dealerships that specialize in bad credit all across the country and want to connect you with one in your area. Start this process by completing our secure and free car loan request form right now.