What are the income requirements for a bad credit car loan?

Your income is one of the main factors that determines whether or not you qualify for a bad credit car loan. This starts with meeting the lender’s minimum income requirement. Subprime lenders generally require you to earn a minimum income of around $1,500 to $2,000 per month before taxes, but these are not the only income requirements you must meet.

Bad Credit Car Loan Income Requirements Explained

Although $1,500 to $2,000 per month before taxes is generally what is required, the specific amount may vary depending on the lender. Also, how you earn your income plays a role in meeting the requirement.

When dealing with bad credit, you usually work with a subprime lender – a lender who works through special financial dealers – or a buy here pay here (BHPH) dealer – dealers who also act as lenders and offer loans for vehicles on their in-house lots. Both types of lenders need you to meet their income requirements to qualify, but their rules vary.

Subprime lenders require you to make enough taxable income each month from a single source. This means that you cannot combine income from multiple jobs or sources in order to meet the minimum requirement. Although you must have a job that meets the minimum to qualify, your secondary source(s) of income can be used later when the lender puts you in debt, so don’t think your other income doesn’t count.

For BHPH dealers, their income requirements are not as stringent. Yes, you must meet a minimum income requirement, but you can combine income from multiple jobs or sources. This leniency makes it much easier to qualify for a car loan if you have difficulty with credit and have a unique income situation.

DTI vs. PTI ratios

In addition to meeting the minimum income requirement, your income is also used when the lender calculates your debt-to-income ratio (DTI). This ensures that you have enough disposable income to handle paying for a vehicle plus insurance. As we mentioned, if you have additional sources of income, this is included in the calculation of your DTI ratio.

Your DTI ratio is calculated as follows: add up all your monthly bills plus an estimated car and insurance payment, and divide by your monthly pre-tax income. For example, if your monthly bills plus an estimated vehicle and insurance payment total $800 and you earn $2,000 per month before taxes, your DTI ratio would be 40% (800 divided by 2,000 equals 0.40 or 40%).

Subprime lenders generally require that your DTI ratio not exceed 45% to 50%. If you have more than 50%, you may want to reconsider your car choice or try to reduce or eliminate your debts before applying. BHPH dealers also calculate your DTI ratio, but establish a maximum amount on a case-by-case basis.

Bad credit lenders also calculate your payment-to-income ratio (PTI) to ensure that paying and insuring a vehicle doesn’t take too much of your income. They typically cap your PTI ratio at around 15% to 20% of your income and use $100 as the estimated car insurance payment when calculating it. Again, BHPH dealers generally consider the maximum PTI ratio on an individual basis.

To calculate your PTI ratio, take your monthly pre-tax income and multiply it by 15% (0.15) and then by 20% (0.20). For example, if your income was $2,000 per month, your combined vehicle and insurance payment should not exceed $300 (15%) to $400 (20%).

Ideally, you should aim for a PTI ratio below the maximum amount. There are many other costs to consider when buying a car, such as fuel, routine maintenance, and repairs. If you do not take these elements into account, your budget may be stretched too far.

Ready to start?

Now that you know what the income requirements are for a bad credit car loan, are you ready to get financed? If so, don’t go from dealership to dealership looking for a lender, we can do the research for you, even if you have low income.

Auto Express Credit connects people to local special finance dealers who specialize in unique credit situations. Take the first step today by filling out our free and secure auto loan application form.

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