Buy here, pay here car loans and bad credit car loans should not make you feel “less than” because you have challenged credit. You can still buy a car. Used cars are a good deal for those wanting to save money. In fact, used cars make up 75% of automobile sales in the United States. What do you need to know before you get a car loan?
Income and Bad Credit
If you have challenged credit, you should work with a bad credit — or subprime — lender. There are different income requirements; bad credit lenders will usually require a base income of $1,500 to $2,000 per month. Whether you are self-employed, an independent contractor, or are an exempt (salaried) or non-exempt (hourly) employee, you can obtain a loan as long as you can show evidence of your income.
Exempt and non-exempt employees should bring a recent W-2 pay stub to show both that pay period’s income as well as your year-to-date income. If you are an independent contractor, you should bring your tax return from the latest tax filing. This is also the case for self-employed workers.
Debt To Income Ratio
Your debt to income and payment to income ratios are important to know for the bad credit lender. Your debt to income ratio shows the difference between your monthly income and your monthly outflow (rent, food, insurance, utility bills). Loan approval usually requires a debt to income ratio of less than 50%. If you make $2,000 per month before taxes and your bills, including the estimated car payment and insurance, are $1,000, your debt to income ratio is 50%.
Payment To Income Ratio
The payment to income ratio will give you the amount you can afford for your monthly car payment. Typically, the maximum payment to income ratio buy here pay here car loans will require is 20%. If you take your car payment, after you have figured taxes and fees, and divide by your before-tax income on a monthly basis. If you make $2,000 per month and your car loan payment will be $400, your payment to income ratio is 20%.
Additional Information For Buy Here Pay Here Car Loans
There are other requirements bad credit lenders will ask for before you get a car loan.
- Down payment. At a minimum, bad credit lenders will ask that you pay down $1,000, or 10%(the less of the two), against the car’s sale price.
- Residency. Car lenders will ask for proof of residency. This may be shown by your driver’s license, a current utility bill or passport. Often, they will ask for more than one piece of evidence. They want to make sure that you are who you say you are, plus, this will make it easier when it’s time to fill out the loan application.
- References. Bad credit lenders and other lenders will ask for references. If you have bad credit, it is more than perfunctory. Often, they’ll ask for three to five personal references, which will include their names, addresses and phone numbers.
These are some of the most common requirement that bad credit and used car loan lenders will ask for before you make your purchase. Another good thing to have, in order to increase the odds of your loan acceptance, is a co-signer. This limits the risk to the lender. Good luck on getting your used car!
