Prepare your proof of income for a car loan
When looking to finance a vehicle, the most important part of qualifying is whether or not you have the capacity to repay the loan. A lender doesn’t just take your word for it, but they need proof that you are making enough money to cover your car loan costs and proof that this will continue until your car is gone. reimbursed.
What is proof of income?
Proof of income is a document or documents that prove your level of income and / or your employment to an applicant lender. They use this information to perform various calculations regarding your auto loan and your ability to repay it.
To provide the proper proof of income to an auto lender, you need to make sure that you know what to expect – different forms of income require different proof. As a bad credit borrower, lenders prefer that you have W-2 income, but can also accept 1099 income or unearned income like alimony or permanent disability, but lenders vary in what ‘they accept.
In most cases, lenders will accept the following forms of proof, depending on your income type:
- Check heels – Prove the W-2 income. Must be computer generated and have income information since the start of the year.
- Letter of Award – Can be used to verify stable, unearned income such as child support, alimony, social security, or permanent disability. The letters should be official documents and prove not only how much money you are receiving, but also that you will be getting the money for the life of the loan.
- Income tax documents – If you are an independent contractor or independent business owner, you will likely need to file two to three years of professionally prepared tax returns.
- Bank statements – Sometimes used to verify income if you are receiving money from a rental property. Also used as proof of additional income along with other documents. For a lender to consider bank statements as proof of income, they typically need to see at least six months of statements.
- Letter of employment – Letters of employment themselves are generally not considered proof of income, but if you are a borrower with bad credit, you may be asked to provide an employment verification letter with your proof of income. .
Your income not only proves your ability to pay off a car loan, but also your ability to insure, refuel, and maintain the vehicle while having enough amortization in your finances to pay the rest of your bills. While the amount of your income plays an important role in your overall loan amount, the amount of your debt also plays a role.
Why do I have to prove my income?
Proving how much money you make isn’t just about paying off your loan. Vehicles have a lot of associated costs with them, and lenders take all of these things – along with your other monthly payments – into account before they give you a loan.
If there isn’t enough wiggle room in your overall budget when applying for a car loan, you might be disappointed. Lenders want you to be successful in paying off your car loan because it costs them money if you default.
In order to prove that your finances aren’t stretched too far, lenders use two formulas to make sure you’re not overburdened:
- Debt-to-income ratio (DTI) – This tells the lender how much of your income is used by your existing bills and payment obligations, including your estimated car and your insurance payment. Lenders generally do not grant loans to people who have an DTI of more than 45% to 50%.
- Payment-to-income ratio (PTI) – This lets the lender know how much of your income will be used for a loan repayment of a certain size. You can calculate an estimated payout cap for your budget by determining your PTI. Lenders generally prefer to cap your payment, including an estimated $ 100 for auto insurance, at 15% to 20% of your income. However, when it comes to PTI, the lower the better.
Remember: The amount you are allowed to borrow is directly related to your gross monthly income. The more you earn, the more you will eventually be able to borrow, depending on your overall credit situation.
Income levels and auto loan approval
While it’s true that your income level affects your ability to repay a car loan, it can also affect your ability to qualify. When you have great credit, your income may not have as much of an influence on your car loan eligibility as when you have poor credit.
If you work with a bad credit lender, expect to need a minimum income of around $ 1,500 to $ 2,500 per month, before taxes, for a single job to qualify.
When you get a car loan with bad credit from a subprime lender, income is a big part of the puzzle, but it’s not all you need. Your driver’s license, utility bill, and phone bill are also documents used to prove your residency, which, along with your income, helps show the lender your overall financial stability. Remember, bad credit auto lenders also take a closer look at your overall financial situation.
No proof of income?
If you can’t prove your income, you may not be able to get a loan from a subprime lender or traditional direct lender. However, you might not be short on auto financing. In many cases, you may still be able to qualify for a used car from a Buy here pay here (BHPH) car dealership. These dealers are the lenders and you finance yourself with internal financing.
This means that they don’t always have the same proof of income requirements as other lenders. Although you will need to prove your income, you may be able to use additional income or multiple jobs to meet the requirements, which you usually cannot do with a subprime lender.
Be aware that BHPH dealerships only sell used cars, and usually at a higher interest rate than you might otherwise qualify for with traditional or subprime lenders. If you need a vehicle now and you have already been turned down by a subprime lender due to verifying your income, a BHPH lot may be an option for you.
Ready for your next vehicle?
If you need to navigate to your next vehicle, we want to help. Here has Express auto loan, we know how to find dealers in your area who are registered with subprime lenders who work with credit-distressed consumers. Don’t wait to get the car you need, find a dealership near you without the stress of multiple refunds. Simply fill out our quick and free auto loan application form and we’ll do the research for you. The process never has a purchase obligation and you can start from anywhere – what are you waiting for?