Every year, subprime loans provide a ray of light for millions of consumers with less than perfect credit. However, they still have strict guidelines to be met for approval, and aren’t guaranteed to work for every potential borrower.
Of the many requirements for subprime financing, income plays a large part in the approval process. Typically, lenders require a minimum gross monthly income of at least $1,500. This is pre-tax, earned income, usually from a single source. Lenders will use your most recent check stub for income verification and to help determine your ability to repay a loan.
Another important factor that lenders can gather from a check stub is length of employment. In order to qualify for a subprime loan, a lender typically requires at least six months on a current job, which shows stability – a factor lenders watch for.
Stability is also seen in a borrower’s residence. Usually, a lender requires a current utility bill in the consumer’s name to prove they live at the address stated on the application. The form will also likely ask you to list your recent residence history. This allows lenders to see how long a potential borrower has lived in the area. People who move often, especially from state to state (unless it’s a job requirement), typically have a harder time getting a loan approval.
In addition to proving income and residence, consumers looking for subprime financing need to provide proof of a working telephone in their name. This must be either a landline or a cell phone from a national carrier and can’t be a pre-paid phone.
Lastly, a list of six to eight personal references with names, addresses and phone numbers rounds out the list of additional requirements for a subprime loan. Consumers must also provide the basics, which are required for all lending: a valid driver’s license and proof of insurance.
Still Turned Down?
If a borrower provides all the necessary documentation and meets all the base requirements, there's still a chance they may miss out on an approval. Here are some factors that may contribute to being turned down:
- Time – Time can be a big enemy in several areas for potential borrowers with bad credit. Short time on a job, being new to an area, or not having enough of a credit history can all lead to a denial. At this point, waiting it out and trying again may be the only option for job and residence, but a thin credit file can be helped in several ways. A good tip is to open a secured credit card to start building credit.
- Poor credit profile – This is typical of consumers who have maintained poor credit for most of their lives. People who habitually pay bills late and show accounts in default on their credit report may be turned down for a loan. To begin fixing this, start paying all your bills on time. Over time this will help clean up your credit history.
- Multiple repossessions – Often, subprime financing can work for people in tough situations, such as having a single repossession on their credit history. However, there are usually stipulations regarding multiple repossessions. People in this situation should note that the severity of these repossessions will lessen over time, and they'll eventually drop off a credit report. Borrowers will typically need to wait to apply for financing for one year after a repossession.
- Missed child support – Borrowers who are behind on their child support are typically out of the running for a loan approval. However, there can be extenuating circumstances, and most subprime lenders will take this into account with the proper documentation.
Ready to Begin
Now that you know some of the things that can knock you out of the subprime financing ring, you can focus on the things that improve your chances for an approval. If your ducks are in a row and you’re ready to begin the process of financing your next vehicle, Auto Credit Express is a great place to start.
We work with a nationwide network of special finance dealers who have the lenders available to help people in a variety of bad credit situations. Let us point you in the direction toward a local dealer who can help. Getting started is a snap, just fill out our free, no-obligation auto loan request form today!