When you are in need of a car, it can be difficult to think of much else. Being without a car in today's world can be a real pain in the neck; just getting anywhere requires bumming a ride from a friend or family member, taking the bus, riding a bike or walking.
For someone with a less-than-perfect FICO or credit score, being car-less is particularly painful because it can be very hard to get qualified for a car loan. As you know, your credit score plays a big role in whether you can get approved for a car loan.
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In addition to your credit score, in order to qualify for an auto loan you will need to be able to show your lender that you make a certain amount of money each month. This makes sense, of course, since the lender needs to feel secure that you will be likely able to repay the loan.
If you are wondering what is the required income for bad credit auto loans, here are 3 tips:
1. You should expect to be making at least $1,000 to $2,000 per month at minimum in order to qualify:
While there is no federal law that says how much money you need to make in income each month in order to qualify for an auto loan, most experienced lenders will tell you that the absolute bare minimum is about $1,000 per month. Others will tell you that at least $2,000 per month is required. Of course, part of the answer depends upon how much you want to borrow (less is better), your credit score (higher is better), and how much of a down payment (more is better) you can come up with.
2. Banks only extend loans to people whose new car payments would be no higher than 20% of their monthly income:
Another way to figure out how much income is required in order to take out a bad credit loan is to calculate your expected new car payment in advance. Why? As a rule of thumb, banks usually allow your car payments to be no higher than 20% of your monthly gross income.
For example, if you expect your new car payment to be around $300/month, then you should be making at least $1,500 ($300/0.2) per month in order to qualify for an auto loan. The required amount you have to make may be a bit higher if you have a low credit score of under 600.
3. Banks prefer no more than a 45% total debt-to-income ratio:
Yet another thing to consider is to realize that most banks do not like to lend money to anyone whose total outstanding debt is greater than 45% of their annual income. So, for example, if you make $20,000 per year, you should have less than $8,100 in outstanding debt (including your planned new auto loan).
Consider these tips as you decide how much you can afford on a car via auto financing, even if you have bad credit.
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