Applying for an auto loan can be stressful if you have bad credit. Many lenders don’t work with bad credit situations, so when you do find a subprime lender, you’ll want to make sure you’re prepared and meet the basic qualifications.
The most important requirement in qualifying for a bad credit auto loan is income. Lenders look at your gross income – the amount you make before taxes are taken out – to determine your eligibility. The minimum income requirement varies by lender, but it’s typically around $1,500 to $2,000 per month in gross wages.
Subprime lenders use this amount to determine if a borrower can afford a car payment by calculating their debt to income (DTI) ratio. You can calculate it on your own by adding up all your regular monthly bills and dividing the sum by your gross monthly income. On top of your DTI, lenders will make sure the vehicle payment doesn’t exceed 15 to 20 percent of that same gross monthly income figure – a calculation known as your payment to income (PTI) ratio.
Other Bad Credit Car Loan Requirements
In addition to meeting the income guidelines, there are some other important requirements to consider. You need to be at least 18 years old and be a current resident and legal citizen of the United States to obtain an auto loan. You’ll also need to bring these documents:
- Proof of identification with a valid driver's license or state I.D.
- Recent computerized pay stub that lists YTD earnings to prove your income
- A utility bill (gas, electric, water) for proof of residence
- Six personal references with contact information
- A recent phone bill as proof you have a working phone (no pre-paid phones)
Last but not least, make sure you save for a down payment. A down payment will benefit you in the long run by lowering your monthly payment and lowering your interest charges. The more money you save up for a down payment, the better off you’ll be, financially.
Finding a lender willing to work with problem credit situations can be tough. That’s why we strive to help people find the right dealerships at Auto Credit Express.
We connect car buyers to local dealerships that are equipped to handle challenging credit situations. Save the time, hassle, and energy of trying to find a dealer that can help you on your own. Get started by submitting our free and secure auto loan request form today.