As with any financial situation, an auto loan is tailored specifically to you. This means that you sometimes have to be prepared for a situation that not everyone may experience. It's our mission to prepare you for your next car loan opportunity, and that means shedding some light on the grey areas that fall outside of the most common lending scenarios.
Auto Loans Aren't Black and White
Every automotive situation is its own. Even if you get the same rates and terms as another person you're likely to have a unique car loan experience. That said, there are a few general ground rules that most subprime auto lenders follow.
These guidelines are to help ensure that you can comfortably and successfully navigate a car loan without leaving you high and dry in other areas of your finances. The typical requirements include proving you have the ability, stability, and willingness to complete your loan.
Key among the requirements are those for income and employment – not many lenders are willing to supply a loan to someone who can't prove they're able to make consistent payments.
The basic guidelines for a subprime auto loan are commonly talked about, but the more complicated situations that sometimes arise don't often get as much print.
Even though there are no hard-and-fast rules to what a lender does and doesn't require when it comes to a car loan, we want to shed some light on a few situations that may come up. There are some grey areas that come up with auto financing, and we want to illuminate them for you.
Shining a Light on Income Requirements
When it comes to general income requirements for subprime car loans, we commonly say that lenders require at least $1,500 to $2,500 a month before tax (gross income). Your lender may require more or less, but many of the lenders that are signed up with our dealership network keep to these general guidelines.
Many lenders require this income to meet a minimum threshold from a single source of taxable, earned income. There are, however, some extenuating circumstances that lenders may consider multiple jobs. This usually depends on the exact nature of your job or jobs, how long you've been employed there, and what your specific situation is.
In order to prove your income, you're typically required to bring in your most recent check stub. These days, it's a more common request by lenders for you to provide at least the last 30 days of computer-generated check stubs. Of course, the exact proof you need depends on your employment, or source of income, and your lender requirements.
Generally, if you're a W2 employee, you have a check stub that comes with each paycheck. If you're not in the habit of saving check stubs, it's a good habit to get into. Proof of income is a key foundation of getting any type of loan or credit. If you don't receive physical printed checks, you can usually access your employer payment system online these days to view and print your check stubs, or contact your employer to get them.
If you don't receive typical income, or have proof of typical earned income, you may not be out of the running for the auto loan you need. There are several grey areas of income and employment situations that a lender may still be willing to work with.
Uncommon Income and Employment Situations
We can't list every instance where a lender does or accept a specific type of proof of income and employment. Just as each situation is unique, so are lender requirements – so, these could vary.
The best practice is to ask your lender flat out if you have a question or concern about your proof of income or employment. If they don't know about your specific situation, they can't help you work on it. You also don't want to charge ahead with a deal, only to find out that they can't approve you for a car loan in a specific situation.
You may want to talk to your dealer up front so they can let you know if they have a lender that may offer you an approval. Here are a few examples of some uncommon situations a lender may consider:
- Multiple employers: If you have consistently worked multiple jobs, there can be a grey area, and whether or not a lender accepts this is up depends on a few factors. Some lenders only consider your job with the highest income. Others might consider multiple sources of income depending on your length of employment.
- Additional income: Most lenders do accept additional income sources over and above the qualifying income as long as it's consistent , and you've received it for at least six months to one year. Additional income is used to lower your debt to income ratio, which shows the lender how much income you have available compared to the bills you pay.
- Unearned income: If you have unearned income, it can typically be used as an additional source of income on top of earned income. Not all lenders accept unearned income though, and most don't accept it as a primary source. However, if your income comes from Social Security, long-term disability, or alimony, some lenders may consider this. You need to prove that you make enough to cover your loan payments, typically with an award letter, and your income has to last for the duration of the loan term.
- Self-employed/contract labor: If you file a 1099 tax form at the end of the year because you’re self-employed or working as a contract laborer, you generally need to prove your income with around three years of tax returns. In some cases, you may need to provide bank statements to show that you have consistent income. However, bank statements alone aren't enough to prove you have taxable income in most cases.
Stability is the name of the game when it comes to subprime lenders. The longer you've lived in the same area and worked for the same employers, the more favorably a lender is likely to look at you for an auto loan approval. Just because you don't have a years long career track with one employer doesn't put you out of the running though!
Subprime lenders know that borrowers need to start somewhere, and may be willing to assist new borrowers without a long track record of credit and employment. Many car lenders ask for you to meet a long list of qualifications to verify that you’re able to repay the auto loan.
They don't do this to make it harder on you, but easier. The more proof you can provide that you have the ability, stability, and willingness to take on a car loan, the better, because they don’t just rely on your credit rating to determine your eligibility.
With this in mind, don't come to a dealership empty-handed. If you haven't been able to pin down the dealer on what to bring with you, it's better to be overprepared than underprepared. In addition to your proof of income and employment, a subprime lender is likely to ask you for a number of things. These may include: proof of residency, proof of a working landline or contract cell phone, a list of personal references, and a valid driver's license, among other items.
Let ACE Be Your Guide
Getting the auto loan you need with bad credit can be a big step for many people, but you don't have to take this step alone when you work with Auto Credit Express! We've been matching credit-challenged consumers with local dealerships that can provide car loan solutions for over 20 years. Let us connect you with the auto financing opportunity you've been waiting for.
Don't walk or drive all over town looking for a dealer that can help, start here instead! You can fill out our fast, free auto loan request form and get your car buying journey started from the comfort of home, or wherever you find yourself. There's never any obligation to buy, so don't hesitate – get started right now!