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What Is the Minimum Income for a Car Loan?

May 16, 2019

When you have bad credit, your income plays a major role in whether or not you qualify for a car loan. A steady income that meets the minimum requirement of your lender will be a boost for your application. But what is the minimum income for a car loan?

In this post, we cover:

Universal car loan income requirements

Every lender — whether you’re working with a dealership, bank or private company — has their own approval conditions, so it’s a good idea to ask for specifics before you apply. Reputable lenders will be upfront about their income requirements for car loan.

When it comes to income, here are a few ways lenders determine if you qualify for a car loan:

  • Auto loan income requirements

This number varies from lender to lender, but generally you will need to make $1,500 to $2,000 a month before taxes to get a bad credit car loan. Find a recent pay-stub to determine your pre-deduction income.

  • Debt to income ratio for a car loan

How much debt you already have will affect how much more you can take on. To calculate your debt to income ratio add up all of your monthly bills and loan payments and divide that number by your monthly income. Most lenders won’t approve someone carrying more than 45% debt to income.

  • Payment to income ratio

Affordability is one of the biggest considerations for a lender. If you take on a car loan that is more than you can afford you have a higher chance of defaulting. A widely used budgeting equation is the 20/4/10 rule — which suggests that you spend 20% on a down payment, finance for four years and keep car costs (including loan payments and insurance) to 10% of your monthly budget. Lenders generally won’t approve a loan that is for more than 20% of your monthly pre-tax income.

WHAT TO USE AS PROOF OF INCOME

When applying for a car loan you’ll need to provide the documents to back up your income claims. A pay-stub with your year-to-date earnings or a recent tax return will usually suffice. If you have a non-traditional job there are other documents you can use as proof of income just ask your sales advisor.

HOW TO QUALIFY FOR A BAD CREDIT CAR LOAN

If you’re on a tight budget but need a car ASAP, there are a few things you can do to improve your chances of getting approved for a loan.

  1. Monitor and work on improving your credit score;
  2. Make a budget and stick to it;
  3. Look for a less expensive vehicle;
  4. Seek in-house or dealership financing (these lenders are more flexible).

Income and bad credit car loans

Lenders set minimum income needed for a car loan to make sure their customers can afford the purchase and the monthly payments that come with it. The income threshold varies by lender, but most dealing with bad credit car loans require a minimum monthly income of $1,500 to $2,000 before taxes. They will also take your debt to income and payment to income ratios into account before approving financing.

To qualify for a car loan with Legacy Auto Credit you need a minimun monthly income of $1,500, Canadian residency and a valid driver’s license. If you meet those requirements we’ll set up a meeting to discuss your application further and determine approval.