Income and employment requirements for bad credit auto loans
You cannot 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 for the life of your auto 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 bad credit borrowers require that you have a minimum monthly income of at least $ 1,500 to $ 2,500 before taxes to take out a car loan. Many of them prefer that the income come from a single source of W-2 employment. This means being employed and receiving a paycheck used by the lender to verify your income and employment history.
As a subprime borrower, you are usually required to show proof of income – your last 30 days of check stubs showing income since the start of the year. In some cases, bank statements can help, but are generally not accepted as proof of income when you are an employee.
What if you are not an employee? There is a different set of stipulations when you are a freelance writer, 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 income tax returns to prove your income.
No ordinary income?
If you have income from another source such as rental property, permanent disability, alimony, or Social Security income, you are not short of a car loan. However, you must prove that your income is constant and will continue until the end of your loan term.
These alternative sources of income usually require other proof to verify. In most cases, an award letter is required to prove SSI, SSDI, SA, child support and alimony. The income you make from rental properties can usually be proven with receipts, bank statements showing deposits, and possibly income tax returns.
We mentioned above that subprime lenders prefer income from one full-time source. If you don’t have this, but instead have multiple part-time positions, it’s usually up to the individual lender to work with you or not. Many lenders can assess your work history to see how consistent your work history is for both income streams to help them make a decision.
This usually means proving that you have been in your current job (s) for at least six months to a year and have had a strong work history for at least three years, with no more than 30 day breaks between jobs.
Additional income information
Just having the means to pay off a loan is usually not enough to qualify when you have bad credit. If you’re trying to get an auto loan and have a credit score of around 660 or less, the lender does some extra math. These are called debt-to-income and payment-to-income ratios, and you can also do these to make sure you don’t outdo yourself financially.
The debt-to-income ratio, or DTI ratio, is used to see how much of your income is being used by the bills you already have. Lenders prefer that you are not overly stretched for a loan, so they require that you use no more than 45% to 50% of your gross monthly income, with your estimated auto loan and auto insurance payments included. .
Lenders also don’t want the cost of paying your loan and paying the insurance premium to absorb too much of your income on their own. For this reason, they cap your payout-to-income ratio, or PTI, around 15% to 20% of your income. However, the lower your ITP, the better.
Do you have what it takes financially?
If you’re ready and ready to take out your next car loan, and are confident that you have the income and work history to meet a lender’s requirements, we want your dealer search to be quick and easy. Here has Express auto loan, we know how difficult it can be to find a special finance dealer who works with consumers with credit distress.
Instead of scouring miles from dealerships that don’t have the loan resources you’re looking for, just start here, for free. Fill out our quick, no-obligation auto loan application form now, and we’ll get in touch with a dealership in your area.