Both your income and your credit score are important factors in determining your eligibility for an auto loan. However, they matter for different reasons. You can get a car loan with a poor credit score, but securing an auto loan without income isn’t likely to happen.
Auto Loan Requirements Vary
Before we get into the nitty-gritty of auto loan requirements, it’s important for us to acknowledge that every lender varies in their specific stipulations for auto financing. Some lenders are more lenient than others in terms of credit scores, while some traditional lenders require a spotless credit history and high monthly income.
Here at Auto Credit Express, we’re experts in bad credit auto loans due to our nationwide network of dealerships that are signed up with subprime lenders. If you’re a bad credit borrower looking for a car loan, and you’re wondering what the common requirements are for income levels and credit scores, you’re in the right place.
Income Requirements for Auto Loans
Most auto lenders have baseline income requirements. Additionally, the more expensive vehicle you’re looking to finance, naturally the more income the lender is likely to require. In a sense, you could say that having more income is “better” than having a perfect credit score. Without any provable, steady income, chances are, you’re not going to qualify for a car loan with most auto lenders.
Many lenders typically require around $1,500 to $2,500 in gross minimum monthly income, proven with computer-generated check stubs or tax returns. This equates to roughly around an annual gross income requirement of $18,000 to $30,000. If you make more than this requirement, that’s great, too.
However, how much disposable income you have available matters as well. Even if you meet the initial income threshold, you still need to prove you have enough income to pay for the auto loan and car insurance after your other obligations.
The calculation that lenders use to determine whether or not you have enough income to qualify for financing is called your debt to income (DTI) ratio. Lenders add up your existing monthly loan payments, projected car payment, and expected auto insurance premium, then compare it to your monthly gross income.
If they determine you don’t have enough monthly income to cover the vehicle expenses, they don't approve you for a car loan. Subprime auto lenders want to be sure they’re not approving financing for borrowers that are already financially overextended or those who may become overextended with the loan.
These lenders don't want you to default on your auto loan, and borrowers without much wiggle room in their monthly budget have a higher likelihood of default. The more disposable income you have, the better your chances of meeting these income and DTI ratio requirements.
However, even with more than enough income to take on a car loan, many traditional auto lenders can turn you down if your credit score isn’t up to snuff. There are lenders willing to assist borrowers with poor credit, though.
Your Credit Score and Car Loans
Your credit score and reports are major players in getting an auto loan approval, and they’re the main determining factor in what interest rate you can qualify for. Your credit score serves as a way for lenders to judge your creditworthiness, which is your ability to repay borrowed money. The better your credit score, the better your chances of qualifying for a car loan overall.
Bad credit is generally considered a credit score below 660. With a credit rating this low or lower, you may run into some issues getting approved for vehicle financing with traditional auto lenders – even with a substantial income. While you may have the available income to pay for the car, lenders want to make sure you can make the monthly payments on time.
There are, though, many lenders willing to assist borrowers with tarnished credit histories. Subprime lenders are a great example since they look at your income, work and living stability, DTI ratio, and require a down payment. In other words: your credit score isn’t the biggest player in determining your creditworthiness for a subprime car loan.
Wrapping Up Income and Credit Score Requirements
Without enough income, it can be very difficult to get approved for vehicle financing. With a low credit score, you still have car loan options. Here at Auto Credit Express, we want to help you find bad credit auto loan resources.
Thanks to our nationwide network of dealers that are signed up with subprime lenders, we’ve been matching bad credit borrowers to dealerships for over 20 years. To get on the road to your next auto loan, fill out our free car loan request form. We’ll find a dealer in your local area that is equipped to assist borrowers with credit challenges.