There are many things lenders may require of you for qualification of a “bad credit” auto loan. These are things that usually are not required of people with good credit.  The Auto Lender that will approve your auto loan needs to be sure that you will be able to make payments considering blemishes in your past credit history. Some of the requirements that may apply are:

Drivers License

Lenders and/or dealerships will ask you for a current drivers license (for obvious reasons) as well as proof of insurance Make sure your drivers license is valid and is the same state of where you reside.

Proof of Residence

Expect to bring a phone bill preferably with your name on it or electric, water, cable, etc… This will show you reside at that address.

 Proof of Insurance

Yes. If you currently have auto insurance, take a copy of your policy with you to the dealership.  If not, your local dealership can usually provide you (through an affiliate) with low cost auto insurance so you can still take immediate delivery. This is designed to protect both you and the auto loan and lender, should you have an unfortunate accident. This will help pay off the auto loan, so you can purchase another car, truck or van with the credit you helped protect. 

Proof of Income

If you have excellent credit, you probably will not need to prove your income. The lender is strictly looking at your ability to repay the auto loan.  You must have a means to make the monthly payments.  When deciding whether or not to make you an auto loan, the lender will be looking at your employment and income.  An auto loan is far easier to repay if you are currently employed!  This will help establish your good credit for future auto, home or other loans in your future.  This is done on a case-by-case basis .

	Hourly/Salary – Last 2 pay stubs
	Overtime – Minimum 6 months on a regular basis to consider as income
	Self Employed – Last  (2) years Tax returns including the Schedule C
	2nd Job – Minimum 6 months on the job in order to qualify as additional income
	Tips – Must be claimed on your taxes or some cases bank statements can be used to prove this income
	Other Income - Disability, child support, alimony, social security, and retirement

How to Calculate your Income Correctly

I have seen too many applications get turned down (banks would call this “debt to income ratio”) or rejected because the gross monthly income (before taxes) was never calculated correctly.  How to calculate:

Hourly Rate:   Hourly rate x hours worked per week x 52/12 = Gross Monthly Income

Salary Bi-weekly (every 2 weeks):    Salary x 26/12 = Gross Monthly Income

Salary Semi-Monthly:    Salary x 2 = Gross Monthly Income

For example, lets assume your are being paid $12.00 per hour for a 40 hour work week:

	$12.00 per hour x 40 hours = $480.00 per week
	$480.00 x 52 weeks = $24,960.00 per year
	$24,960.00 / 12 months =  $2080.00 per month

Your gross monthly income would be $2080.00.

Most banks as a general rule will take 50% of your gross monthly income that your total debt cannot exceed which in this case would equal to $1040.00.

Calculate your debt:  

First add all your minimum monthly payments that would be reported on your credit report that are current: 

	Target                                $25.00
	Capital One MC                  $15.00
	Mobil Gas Card                  $35.00

The total would be $75.00 but what if you owe on an education loan but haven’t started paying on it yet, the banks will take out 3% of the total amount owed (assuming you will be paying this during the course of your auto loan)

$5000.00 education loan x .03 = $150.00 per month

Your debt so far would $225.00.

Now, if you have a mortgage payment in your name this amount would already be included with your credit cards and other debt that shows on your credit report.  However, if you rent or living with family, generally they will subtract at least $300.00 for rent unless you entered in a specific amount above that.  Even if you state you pay $0 (such as living with relatives, friends), they still will subtract $300.00 unless you have proof of a home you reside in is paid for.

Note: This would include your utility bills as well. 

Your debt so far would be $225.00 + $300.00 = $525.00  

Depending on the finance company, they may consider food/living expenses such as gas and maintenance on your vehicle, which could be a minimum amount of $75.00.

Your debt so far would be $525.00 + $75.00 = $600.00 

Car Insurance is also included of $50.00 to $100.00 depending no the bank since it is mandatory to have full coverage on the vehicle during the course of the loan.

Your debt so far would be $600.00 + $100.00 = $700.00  

In the beginning, we stated that your bills could not exceed $1040.00 and by subtracting $700.00, this would leave you with $340.00 left available to make your car payment.  However, banks can take other factors into consideration not stated here.

50% of your gross monthly Income $1040.00 – Total Debt of $700.00 = $340.00 Maximum Payment   

Down payment

Usually yes.  However, banks are getting more and more aggressive with their auto loans and may finance 100% of your new or used car or truck purchase (on a case by case basis).  Many people wonder whether or not they need a down payment. With a bad credit auto loan you generally need some sort of down payment. This does not have to be a large down payment. Remember that the dealer wants to sell the car and the amount of the down payment is negotiable. They will generally work to fit your needs and available funds. However, if they cannot work with you and you are required to put money down to purchase a car, you can always applying for a pay day loan.  There is no credit check so your past credit history does not impact the loan approval process. All you need is an income of $1000.00 a month, a checking account and be at least 18 years old. You can have the money deposited into your account by the next business day.

References

The last thing that they will want you to bring is at least 6 references to include their name, address, and phone number where they can be reached.   

Co-signers

One of the best ways to improve your chances of being approved for a bad credit auto loan is to have a co-signer. The co-signer is liable for the payment of the loan and will have to pay if you default. Because the co-signer is liable, his or her good credit will help you to be approved for the loan.