There are requirements you need to meet in order to get into a bad credit auto loan. All lenders have their own specifics, but no matter where you get a car loan, one thing is for sure – you have to be able to repay it. This is where standard income and employment qualifications come in.
Income Amount: Just the Beginning
For starters, you need to know that many bad credit auto lenders require a monthly minimum income amount of around $1,500 to $2,500. It typically needs to come from a single source to qualify for the minimum level, but if you have more than one source of income, anything additional may help when lenders are calculating who much wiggle room you have in your budget.
It stands to reason that most lenders have income requirements that list how much you need to make to reasonably be able to repay a loan. But, did you know that how you make that income can make a difference, too? Not all income sources are viewed equally, so it's important that you know what you need to prove how much you make to your lender.
Employment Impacts Your Auto Loan, Too
Since income and employment often go hand in hand, it's no wonder lenders have specific requirements for the type of income you make as well as the amount. This is because income that's used for a car loan requirement usually needs to be taxable income, meaning some forms of income like Social Security, disability, and unemployment don't always count.
Earned income is generally preferred by subprime lenders that work with poor credit borrowers, but other forms of income might be accepted:
- Earned income – This is also referred to as employment income, or W-2 income, and is what many people bring home from their jobs. If you earn W-2 income, you're required to prove this to a lender with a recent check stub showing year-to-date income. Most lenders also require that you've held the same job for at least six months to one year, and you must prove that this job meets the minimum income requirement alone, even if you have a second job.
- Unearned income – Also called non-taxable income, this is typically collected from Social Security, child support, alimony, rental properties, or investments. Some of these may be used as income to qualify for a loan, but it depends on the lender you're working with. Many lenders count these forms of income as secondary income, which can impact the amount of the auto loan you may qualify for. Others may accept these as a primary income source, as long as you're being taxed and you can prove your monthly earnings through a combination of bank statements and legal documents, such as award letters.
- Self-employment and contract labor – These forms of income, often referred to as W-9 or 1099 income, come from owning a business or being self-employed. Hairdressers, house keepers, and many construction workers also often fall into this category. You're typically required to prove your 1099 earnings with at least two or three years worth of tax returns and, possibly, bank statements. There can be many additional stipulations on income if you're in this category of borrower, so be sure to ask about your lender's requirements from the start.
- Collecting unemployment – Many people ask about using an unemployment check as income, but, unfortunately, this doesn't count as a form of income. Even though most people on unemployment receive a check every week, it's temporary income. No forms of temporary income count toward qualifying for a car loan. Unemployment can impact both your income and your work history when it comes to getting an auto loan.
Additional Requirements for Bad Credit Car Loans
Income and employment requirements are some of the most important in terms of ability to repay your car loan, but there are other requirements that you have to meet for a bad credit auto loan as well. Most of these are designed to help a lender see that you have the ability, stability, and willingness to take on a car loan.
Others, such as looking into your credit reports and score, are standard for getting any form of credit. When you work with a subprime lender, they look at your credit information, but they also evaluate additional requirements, too. These lenders know that you're more than just a credit score.
Ready to Get Started?
Now that you know what to expect for your income and employment requirements for a bad credit auto loan, you can get started searching for your next vehicle. Or, you can skip the search all together and let us find a local dealer for you.
At Drivers Lane, we've been matching consumers to special finance dealerships for over 20 years, and we want to help you, too. Rather than hunting down an elusive special finance dealer on your own, turn to us instead. We match borrowers with poor credit to dealerships that are signed up with subprime lenders. To get started, simply fill out our fast and free car loan request form.