Credit-challenged car buyers that have additional sources of income outside of job wages and salaries want to know how their ability to be approved for a car loan will be affected.
We often get asked questions along the lines of this, which we recently received from a potential applicant:
"Want to apply for a loan. The online application does not allow me to put in my Social Security income, which makes my gross income about $2,000 a month. How can I handle this on the application?"
Many others want to know if they can get approved with an income that largely (or solely) comes from benefits like Social Security or disability.
To answer these questions, it's important that we first understand the income requirements for a bad credit auto loan.
The Typical Income Requirements
While there is no universal standard, most subprime lenders typically require an applicant to have a minimum monthly income of $1,500 gross (before taxes).
Any other fixed income, such as Social Security and disability (SSI, SSDI), child support, alimony, damages, or other benefits, should be included in your monthly income total when you apply.
Lenders want you to include all of your income sources when they calculate your debt-to-income (DTI) and payment-to-income (PTI) ratios.
- Your DTI ratio is your total monthly expenses divided by your total monthly income.
- Your PTI ratio is your potential car payment divided by your total monthly income.
Your likelihood to be approved hinges on how capable you are of paying back the loan, and these two ratios help provide lenders with a good idea of just how able you are.
Just as they require tax forms or pay stubs to verify your wage or salary, subprime lenders will need proof of any such additional income sources. Make sure that you have the paperwork on hand when it comes time to visit the dealership.
But what if a potential applicant's only source of income comes from Social Security, disability or other benefits? Can they be approved for a bad credit auto loan?
When Benefits are Your Only Source of Income
While it is easier for those with job wages or salaries who receive additional benefits to get approved, the situation becomes a bit murkier for those that depend on benefits for most, or all, of their income.
It complicates the situation for the majority of subprime auto lenders because of one simple limitation - These types of income cannot be garnished.
In the event a borrower fails to meet the obligations of the loan, a lender might need to garnish a portion of their income in order to pay off any fees or outstanding balance. When an income source isn't taxable, it cannot be garnished.
Therefore, if you heavily rely on tax-free sources of income, your chances of approval can be diminished. But it all depends on how much of your income it comprises. You can consult your tax expert or the internet for a complete list of all of the tax-free sources of income.
The Bottom Line
All sources of income should be included in your monthly total when you apply with Auto Credit Express. And as long as at least one source of your income can be garnished, and you meet the income requirements of the lender, you shouldn't have much trouble meeting that requirement.
However, if the majority (or all) of your income comes from tax-free benefits like Social Security or disability, it can be next to impossible to get approved for a bad credit car loan. Although, we should stipulate that not all lenders are the same and some may consider extenuating circumstances.
Auto Credit Express is the place to turn to when you need an auto loan and have damaged credit. Just fill out our free and secure online application today to begin the process.