You can't finance a vehicle without some way to repay the loan. This means having the income to make this promise, and having relative certainty that your income is going to last the entire term of your auto loan. However, nothing is certain in life, so subprime lenders look at the factors surrounding your income to decide.
Proof of Income Is Essential
Most subprime lenders that work with bad credit borrowers require that you have a minimum monthly income of at least $1,500 to $2,500 before taxes to take on an auto loan. Many of them prefer that income comes from a single source of W-2 employment. This means being employed and receiving a paycheck that's used by the lender to verify your income and employment history.
As a subprime borrower, you're typically required to present proof of income – your most recent 30 days of check stubs showing year-to-date income. In some cases, bank statements may help but aren't generally accepted as proof of income when you're an employee.
What if you're not an employee? There's a different set of stipulations when you're a freelancer, contract employee, or self-employed worker. If this applies to you as a 1099 earner, you're likely to be required to bring in two to three years worth of prepared tax returns for proof of income.
No Run-of-the-Mill Income?
If you gather income from an alternate source such as rental property, permanent disability, alimony, or Social Security income, you're not out of the running for a car loan. However, must prove that your income is consistent, and will continue until the end of your loan term.
These alternate sources of income typically require alternate proof to verify. In most cases, an award letter is required to prove SSI, SSDI, SA, child support, and alimony. The income you earn from rental properties can usually be proven with receipts, bank statements showing deposits, and possibly tax returns.
We mentioned above that subprime lenders prefer income from one, full-time source. If you don't have that, but instead hold down multiple part-time positions, it's typically up to the individual lender whether or not to work with you. Many lenders may evaluate your work history to see how consistent your employment history is for both income sources to help them decide.
This generally means proving that you've been at your current job or jobs for at least six months to one year, and have had a solid work history for at least three years, with no gaps longer than 30 days between employment.
Additional Income Information
Just having the means to repay a loan isn't typically enough to qualify when you have bad credit. If you're trying to get an auto loan and have a credit score around 660 or below, the lender does a few extra calculations. These are called debt to income and payment to income ratios, and you can do them, too, to ensure you're not overextending yourself financially.
The debt to income, or DTI ratio, is used to see how much of your income is being used by the bills you already have. Lenders would rather you're not overextended coming into a loan, so they require that you're using no more than 45% to 50% of your monthly gross income, with your estimated auto loan and car insurance payments included.
Lenders also don't want the cost of your loan payment and insurance premium to take up too much of your income on its own. For this reason, they cap your payment to income ratio, or PTI, around 15% to 20% of your income. Although, the lower your PTI, the better.
Do You Have What it Takes Financially?
If you're ready and set to go on your next car loan, and are sure you've got the income and employment history to meet a lender's requirements, we want to make your search for a dealer quick and easy. Here at Auto Credit Express, we know how tough it can be to find a special finance dealership that works with credit-challenged consumers.
Instead of wading through miles of dealerships that don't have the lending resources you're looking for, simply start here, for free. Fill out our fast, no-obligation auto loan request form now, and we'll get right to work matching you with a dealer in your area.
