Most people understand how important a credit score is when applying for a car loan, but many do not consider how important their monthly income is as well. When a lender looks at your loan application, they review your credit, but will also only approve a loan equal to the amount that you are realistically able to repay. However, if you have a lower monthly income than most, there are low-income car loans available. If you’re currently looking for a car loan, GFA Financing has a few pieces of financial advice that you should keep in mind.
Car Loan Income Requirements
On average, a person will need to make at least $2,000 before taxes every month to be accepted for a car loan. A bad credit car loan is intended to improve your credit score, so it is critical to have a firm grasp on your finances when applying for a low-income car loan.
Low-Income Loan Payments
Understanding how loan payments work is the first step in understanding how much you need to earn monthly to get approved. Car loans must be repaid in monthly payments for a set period until the loan is paid off. The monthly amount and length of the loan will differ depending on the loan amount and loan length. One tool that can help you estimate your monthly cost for a low-income car loan is an online loan calculator. For applicants that may not be able to afford monthly payments, securing a car loan can be difficult.
Understand Your Budget
Your current budget and expenses will play a big part in your car loan options, so it’s a good idea to take a close look at your finances before deciding how much to set aside for your car and loan payments. When you apply, a creditor will look at your payment to income ratio (PIT), debt to income ratio (DTI), and your monthly income when considering your financial status for a car loan.
Your PTI is a calculation of your insurance payment and your anticipated car payment, which is then divided with your monthly income. Lenders want to see that you are not overspending when your car loan added. An idea PTI will be no more than 20%.
Your DTI will show how much of your monthly income goes towards your expenses and how much is left over. In this calculation, they will include the price of the potential car’s payments and the insurance plan as well. Most creditors will prefer applications that have a DTI of 45% or less of their gross earnings.
Make Realistic Choices
When looking for a low-income car loan, you should always keep how much you can realistically afford in mind. Approvals are made based on the amount that can actually be repaid. Applying for a car loan above the amount you make will simply result in your application being rejected. Living above your means will also only harm your credit and create strain in other areas of your life.
We suggest that you figure out your PTI ratio with different loan payment amounts. That way, you can get a clear idea of a realistic price range for your new car. If you’re still unsure if you’ve chosen a realistic price range, our auto finance experts would be happy to help you.
Understand Your Financing Options
If you’re looking for a car loan, GFA Financing will be there to help you choose the best option for your situation. With our advice, we’re confident you’ll secure the right loan and that you’ll drive away happy. For more information on our services, give our Toronto auto finance experts a call at 1-888-721-0731.