Car loan eligibility: a concrete example

Having a down payment, qualifying income, and enough room in your budget are all important aspects of being eligible for a car loan. We use a consumer’s question and information to examine their situation and see if they may qualify for a bad credit car loan.

Questions and answers to consumers

Here has Auto Express Credit, we work to match borrowers at dealerships with the loan options they need for their credit situation. Every month we receive many questions from consumers which we are happy to answer.

A consumer, we’ll call him John, wonders if it is possible to get approval for a car loan. Jean wrote:

“I’m looking to get a loan of $ 24,000 to $ 25,000. The gross monthly income is $ 4 to $ 6,000. I have zero credit and I am putting $ 10 to $ 12,000 on a 2020 vehicle. “

First, we are not a lender, so we wouldn’t be able to tell John whether or not he could be funded. However, from this statement we can see that their down payment amount is quite large and is likely to meet the requirements of most of the subprime lenders. Their monthly income is also above the typical minimum amount required for a subprime car loan, although we do not know the amount. income type he wins.

John also said he had “zero credit” which probably means he is a new borrower. A person without credit likely does not have a credit score or is in the lower end of the FICO credit rating range, which is 300 to 850.

Here’s a big problem that comes to mind: As stated, the consumer wants an auto loan of about $ 25,000 – with a down payment of $ 12,000, that makes a loan of $ 13,000. However, if he meant to say he was looking for a $ 37,000 vehicle ($ 25,000 financing), that’s a whole different story.

Since we don’t have all the information, let’s assume that John is looking to finance a car with a sale price of $ 25,000, financing of $ 13,000, and a payout of $ 12,000. Now that we’ve priced the vehicle, let’s break this down and see how it fits into a subprime auto loan and the general requirements for special financing.

Subprime auto loan requirements

Subprime just means bad credit, and people who have never borrowed before often have to start here because they have lower or no credit scores. For many consumers, take out a subprime auto loan can be a way to jumpstart their credit history and get in the vehicle they need.

A subprime lender typically requires the borrower to have a minimum monthly income of around $ 1,500 to $ 2,500 before taxes. John appears to have sufficient income to meet the minimum income requirements of most subprime lenders. If he earns between $ 4,000 and $ 6,000 a month and that income can be proven with computer generated check stubs, it is likely that he is about to be approved for risky auto financing. .

Subprime lenders also typically require a down payment of at least $ 1,000, or 10% of the sale price, and John responds to that as well. If he’s looking to put $ 12,000 on a $ 25,000 car, that’s a down payment of almost 50%. Large down payments are a great way for borrowers with bad credit to lower their interest charges, as people with lower credit scores are more likely to benefit from higher interest rates.

In addition to meeting income and down payment requirements, John must also have a valid driver’s license and a working cell or landline phone to be eligible for funding. There is, however, another requirement that we do not yet know if John fully meets.

Debt-to-income ratio and auto loans

We’re not sure John meets debt-to-income ratio (DTI) requirement. Subprime lenders use the DTI ratio calculation to see how much disposable income you have each month after bills that can be used to pay for the vehicle.

You and John can calculate your own DTI ratio at home. Simply add up your estimated auto loan and insurance payment plus all of your regular monthly expenses (excluding utilities) and divide the sum by your monthly pre-tax income.

John said his monthly income is between $ 4,000 and $ 6,000, so we’ll just say $ 5,000 for the sake of simplicity. Let’s say he pays about $ 2,000 each month in other loan payments, credit card payments, and household bills. Auto lenders estimate that borrowers pay $ 100 per month for full insurance, and based on the price of the vehicle John is looking to buy, his payment is likely to be around $ 350 if he opts for a term. 48 months at a rate of 12%. interest rate (the average for bad credit consumers).

That’s $ 2,450 for all monthly expenses, and her income is $ 5,000 per month. Let’s look at his DTI ratio:

  • $ 2,450 divided by $ 5,000 = 0.49, or 49%

A subprime lender’s maximum DTI threshold is typically around 45-50%. Auto lenders use this calculation to see how much of your income is available because they don’t want to approve someone who is already overloaded or is going to be overloaded with car expenses.

Based on the estimates, John may or may not be eligible for venture financing. We don’t know what its actual expenses are, but if it’s lower, then it could meet the DTI ratio requirement needed to get approval for special funding.

We can’t say for sure that John is eligible for a subprime auto loan without knowing all the details, but it looks like it might be worth looking for a special finance dealership to start the process.

The next step in getting a car loan

One of the biggest hurdles new borrowers and bad credit borrowers face is finding the right lender for their situation. John contacted us at Auto Express Credit, and we’re glad he did! Not only can we offer auto loan advice, we connect consumers with dealerships with special financial services.

Dealers who are registered to work with subprime lenders are sometimes more difficult to locate than traditional lenders, but we want to make it easier to connect with them. To get started, fill out our auto loan application form, and we’ll find a dealer in your area.


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