“Maximum” is very subjective when talking about bad credit car loans. Only a lender can say for sure what that amount might be. However, there's usually a minimum loan amount and many factors determine how much over that you might qualify for.
Be Practical about Your Loan
It’s not the time to try and finance your dream car if your credit is already suffering. Being realistic about your car buying goals and sticking to a practical, reliable vehicle that meets your needs is the best tactic here. Remember that a car loan is a great tool for credit improvement.
The goal is to get an affordable vehicle so you can make on-time payments, which boosts your credit score. After this, hopefully your credit will have improved enough to allow you qualify for a bigger loan.
Vehicle and Lender Qualifications
With a subprime lender, who has the ability to look beyond your credit, you’ll only qualify for certain vehicles. Typically, the minimum vehicle requirements state you must choose a vehicle with no more than 100,000 miles on it that’s 10 years old or newer. These lenders also only lend a minimum of $5,000 and up. Your specific amount will depend on your situation.
To even be considered for loan approval, you must first meet a lender’s minimum requirements. Though these vary by lender, you’ll typically need:
- A minimum gross income of $1,500 to $2,000 a month from a single job
- Proof of income with a computer-generated check stub showing year-to-date income
- At least six months of employment in your current position
- Three years of employment history, with no large gaps between jobs
- Proof of residence with a current utility bill in your name for the address listed on the application
- Proof of a working landline or contract cell phone in your name
- Six to eight personal references
Again, everybody will be individually evaluated, so don't be discouraged if your situation doesn't perfectly match these qualifications.
Determining Loan Approval and Amount
As a bad credit car buyer, a subprime lender will look beyond your credit score and take a closer look at other factors, such as your payment history with others and your debt to income (DTI) ratio. These factors not only help the lender determine loan approval, but also help determine how much of a loan you can comfortably afford to repay.
Payment history will show the lender how you’ve handled credit in the past, which will help them determine your likelihood of successful loan completion. DTI is a simple formula lenders use to ensure you won’t be taking on too much debt.
DTI measures the amount of money you pay in bills each month to how much you make before taxes. Once you qualify, your payment to income (PTI) ratio will determine how much of your income will be used by your combined car and insurance payment each month. Lenders typically won’t approve anyone whose DTI is more than 50 percent, or whose PTI is more than 15 to 20 percent of their total income. You can easily calculate these numbers yourself.
To calculate DTI, simply add together all your monthly payments and divide the total by your monthly gross income. For example: If your rent, potential car and insurance, credit card, and loan payments total $1,100 each month, and you make $2,511 monthly before taxes, your DTI would be 43 percent – which falls within typical lender approval range.
To calculate PTI, divide the amount of your combined car and insurance payment by your gross monthly income. For example: If your combined car payment and auto insurance is $410 a month, divided by your gross monthly income of $2,511, your PTI is 16 percent – also in the typically acceptable range. Note that a lender will usually assume $100 for a monthly car insurance payment, as actual amounts vary.
Applying for an Auto Loan
When you’re ready to apply for an auto loan, make sure you’re working with lenders that can handle your unique credit challenges. Not all lenders have the ability to work with bad credit buyers. The lenders who can – specifically, subprime lenders – typically work indirectly through special finance dealers. You can’t go directly to one of these lenders. Because not all dealerships work with these lenders, it can be hard to know where to go.
Fortunately, Auto Credit Express has got you covered. We work with a nationwide network of special finance dealers, and want to help you find one in your area that has the lenders to meet your needs. The process is simple to get started, and there’s never any cost or obligation. Take the first steps toward your next vehicle now by filling out our online auto loan request form now!