Reporting your gross income instead of your net income can mean the difference between qualifying and getting turned down for a subprime auto loan

What Are Subprime Income Requirements for Auto Loans?

Understanding Subprime Lender Income Requirements

Even after spending the last two decades helping consumers with bad credit, here at Auto Credit express we still find there's confusion over gross income and net income.

The reason why an understanding of this issue is so important, is that putting down the wrong type on a car loan application could result in a rejection of credit, when, in fact, if the correct income had been entered, the applicants loan might well have been approved. This sort of situation is even more common when considering low income car loans.

Comparing Gross and Net Income

Unless you happen to be an accountant, the terms "gross income" and "net income" can be confusing. So think of it this way: the dictionary defines the word "gross" as both "great" and "big".

So "gross" income is "big" income - the income you have before social security, Medicare, and income tax payments are taken out. This is also the income you have before your employer deducts for employee healthcare and 401k contributions. This is income most of us never get to see in our pocket, so it can be easy to forget about it at times.

With all these deductions taking place, you can see why there can be a big difference between someone's "gross" income and what's left once everything is taken out – which is where this is going.

So what is left is "net" income. This is the same as "take-home" income or "wages after taxes." It's the "net income" that you see on your paycheck. Net income is also the amount you see on your bank statement if you have your wages direct deposited.

What Subprime Lenders Want

Now that you know the difference between gross and net income, here's the income figure subprime lenders want you to put down under "monthly income": they want you to tell them what your gross income is.

So if you're filling out a vehicle loan application, please don't add up your paychecks or enter the amount that gets deposited in your bank account. Instead, take a close look at your paycheck and locate your earnings before those taxes and deductions are taken out.

Alternately, you could check your yearly W-2 wage statement and locate the amount of Social Security wages (found in box 3) you are paid. In some cases this amount is higher than the amount that appears in box 1, as Social Security wages are the true gross amount (we're using that word again) you were paid before pre-tax deductions (such as those for 401k and health insurance).

The Bottom Line

Consumers, especially those who are credit-challenged, need to know the difference between gross income and net income. While net income is the amount that appears on your paycheck, it's the gross income amount, what you are paid before taxes, that subprime lenders and bad credit car dealers want you to enter on the application.

There is one more thing: Auto Credit Express specializes in helping credit-challenged consumers find those car dealers that can give them their best chances for approved car loans.

So if you're ready to reestablish your car credit, you can begin now by filling out our online car loans application.