You can’t finance a vehicle without a way to repay the loan. It means having the income to make that promise and having relative certainty that your income will last the life of your car loan. However, nothing is certain in life, so subprime lenders look at the factors surrounding your income to decide.
Proof of income is essential
Most subprime lenders who work with borrowers with bad credit require you to have a minimum monthly income of at least $1,500 to $2,500 before taxes to take out an auto loan. Many of them prefer income to come from a single source of W-2 employment. This means being employed and receiving a paycheck which is used by the lender to verify your income and work history.
As a subprime borrower, you are usually required to show proof of income – your last 30 days of pay stubs showing year-to-date income. In some cases, bank statements can help, but are generally not accepted as proof of income when you are an employee.
And if you are not employed? There is a different set of stipulations when you are a freelancer, contract employee, or self-employed. If this applies to you as a 1099 employee, you will likely need to bring two to three years of prepared tax returns as proof of income.
No ordinary income?
If you have income from another source, such as rental property, permanent disability, alimony, or Social Security income, you’re not out of the running for a car loan. However, you must prove that your income is constant and will continue until the end of the term of your loan.
These alternative sources of income usually require another proof to be verified. In most cases, an award letter is required to prove SSI, SSDI, SA, child support, and alimony. The income you earn from rental properties can usually be proven by receipts, bank statements showing deposits and possibly tax returns.
We mentioned above that subprime lenders prefer income from one full-time source. If you don’t have this, but have multiple part-time positions, it’s usually up to the individual lender whether or not to work with you. Many lenders can assess your work history to see how consistent your work history is for both sources of income to help them decide.
This usually means proving that you have been in your current job(s) for at least six months to a year and that you have had a strong work history for at least three years, with no gaps of more than 30 days between jobs.
Additional income information
Simply having the means to repay a loan is usually not enough to qualify when you have bad credit. If you’re trying to get a car loan and you have a credit score of around 660 or lower, the lender does a few more calculations. These are called debt-to-income and payment-to-income ratios, and you can also apply them to make sure you don’t overstrain yourself financially.
The debt-to-income ratio, or DTI ratio, is used to see how much of your income is being used up by the bills you already have. Lenders prefer that you are not overstretched for a loan, so they require that you use no more than 45% to 50% of your monthly gross income, with your estimated car loan and car insurance payments included.
Lenders also don’t want the cost of paying off your loan and your insurance premium alone to take up too much of your income. For this reason, they cap your payment-to-income ratio, or PTI, at around 15% to 20% of your income. However, the lower your PTI, the better.
Do you have what it takes financially?
If you’re ready and set for your next auto loan and confident you have the income and work history to meet a lender’s requirements, we want to make your dealership search quick and easy. Here has Auto Express Creditwe know how difficult it can be to find a financing dealer who works with consumers in credit difficulty.
Instead of scouring miles of dealerships that don’t have the lending resources you’re looking for, just start here, for free. Fill out our quick, no-obligation auto loan application now, and we’ll get to work right away to connect you with a dealer in your area.