When it comes to getting a bad credit auto loan, there are actually requirements that you do still need to meet. It’s not just a free for all for those who have bad credit. A lot of subprime lenders are willing to overlook a bad credit score in order to set you up with subprime financing, so it’s important to know what those other requirements are. Right? Even though they’re not everything, your credit score and report do come into play. Meaning that if either are horrendous enough, even a subprime lender might reject you. While there is no universal standard of requirements, there are some basic requirements that need to be met, such as a job, driver’s license, etc. They might vary slightly from lender to lender, but it’s good to expect the unexpected.
Finally, your debt to income ratio (DTI), payment to income ratio (PTI), and loan to value ratio (LTV) will also be calculated by the lender.
The reason I’ve labeled these as “basic” is because this is what you’ll typically find for requirements, with slight variations. If it helps, think of them more as common sense terms.
- A gross (before taxes) monthly income of $1500
- 18 years of age or older
- Legal citizen of the U.S.
- Full-time employment with guaranteed fixed income
- Able to show proof of residency (like a utility bill)
- Working phone number for the address listed on the application. Pre-paid phones don’t count
Subprime lending happens on a case-by-case basis, which means you might need to meet all of these basic requirements, or only a few of them. There might even be other factors the dealership would want to look at.
DTI, PTI, LTV Requirements
One thing all lenders will look at however, are your DTI, PTI, and LTV. These play almost just as big of a role in getting a bad credit car loan as your credit score does.
- Your DTI can’t exceed 50%
- Your PTI can’t exceed 15-20%
- The LTV doesn’t exceed the lender’s maximum allowed.
DTI is found by adding up your monthly expenses, then dividing that number by your gross monthly income. The PTI is calculated by dividing an estimated monthly car and insurance payment (based on your score) by the monthly income. Both of these are taken into account and have set limits to ensure that you won’t be biting off more than you can chew when it comes to the financing portion.
The loan to value ratio is a huge part of how the subprime lender minimizes the risk for both parties. It’s the loan amount relative to the value of the vehicle the buyer wants to finance. If the loan is higher than the vehicle’s value, the lender will be taking a larger risk – meaning they will be less likely to approve the loan.
While these limits will vary from lender to lender, i’s a guarantee that no matter who you go to, they will evaluate the DTI, PTI, and LTV. If your credit is in really bad shape, a buy here, pay here dealership can guarantee financing for most people – even if you don’t have any credit to your name.
Just a few hints to keep in mind as you shop around for a bad credit car loan…