If you’re someone who continues to find it difficult to receive low income car loans, then this article is for you.
A lot of people are having this challenge, so you’re not alone! You can consider applying for a low income car loan online if your monthly earnings are limited and your past debt repayment history isn’t the best.
Some lenders specialize in providing low income car loans which can give borrowers an opportunity to buy a new or used car per their financial needs and budget.
- Low Income Earners – People with lower incomes have the opportunity to finance cars despite their having meager monthly earnings.
- Buy a Car with Low Interest – It’s possible to qualify for low sustainable interest rates and get affordable monthly payments.
- For Borrowers with Bad or Poor Credit – Applicants with subprime credit histories have a real chance to build credit provided they stay current on monthly car installments.
Applying For Low Income Car Loans Online – Vital Factors to Consider
The advantage of securing low income car loans with bad credit is to help you buy a vehicle even when income is scarce.
Credit Score and Credit History Length – Most loan dealers will run credit checks to know if you’re a reliable borrower. Lenders will also see how long you’ve been using credit services which helps in judging what to expect from you.
– Majority of the lenders that offer low income car loans prefer working with individuals who are at their current job for at least 1 year. A continuous employment period of 2-3 years is desirable for most lenders.
– Loan dealers will verify income documentation upon application. It’s important that you give accurate and verifiable income documents. You can provide copies of your latest pay stubs, last 2 years of income tax returns or an employment certificate.
Debt To Income Ratio
– To obtain approvals for low income car loans online, you need to make sure you fit the lenders DTI requirement. You might have fair chances of getting approved if your DTI ratio is 40% to 50%.
Payment to Income Ratio
– For calculating Payment-To-Income (PTI) ratio, you need to divide monthly car payments by pre-tax income. Lenders will approve your low income earners request if your PTI ratio falls in the range of 15% to 20%.
– Down payments play crucial roles in getting early approvals. This can ensure that you are borrowing money in fewer amounts which can be repaid within a stipulated frame of time and credit is built.
– When applying for low income car loans online, you’ll need to know that there are some factors which might lead to automatic rejection of your applications.
There aren’t numerous low interest borrowing opportunities available for those on a low income or with bad credit. However, there are options available if you know where to look and understand what is suitable for you based on your circumstances.
Be aware of loans which you should steer clear from or only use as a last resort. It is important to understand the terms that you are being offered and to really review the fine print in great detail.
If you are taking out a loan to pay household bills or living costs (rent, groceries, etc.), it is highly recommended that you speak to a credit counselor to work through your financial issues instead accumulating debt.
Making the Decision
If you have not considered the cost of insurance, title, registration, fuel, financing, licensing and unexpected vehicle repairs, then you’re forgetting a large portion of costs – “Total Cost of Ownership.” The total cost of ownership on a used domestic sedan can range between $5,000 to $9,000 per year.
This depends largely on fuel, insurance and the cost of vehicle. Ensure you have disposable monthly income to pay for the extra costs of car ownership, not just financing!
Overlooked Fact – If you have worked out that you can afford a $250 a month car payment, redo your math to include running costs as mentioned above.
Example: If it costs $6000 a year to run your vehicle, $6000/12 = $500 so the true cost of care ownership would be $750 a month – not including possible repair costs!
Low Income Car Loan Dilemmas
The challenge for many low income earners is their ability to create a strong credit profile. Paying your monthly bills helps but unsecured consumer credit is what really grows a person’s credit profile. The ability to use credit and store cards with frequency can create strong credit scores.
It shows lenders that you can borrow and repay credit easily!
A low income earner may be responsible and have the ability to borrow and repay, but their income to expense ratio may be too risky for a lender to agree.
So, many low income earners are challenged with having a strong credit and cash flow profile.
Fortunately, there are lenders that understand this and have created approval criteria that is more flexible than most banks and other asset finance companies.
*Quick Tip – Be careful of lenders who try to put you in pricey loans. Low income earners are classified as higher risks but it’s not the same as an ex-bankrupt person applying for credit! Compare offers with at least 3 companies to get a true gauge of what you should be getting.
: Non-profit and charitable organizations provide genuinely affordable car loans for low income earners. They truly have your best interest in mind. In some serious cases families or single parent families may even qualify for a free car.
Car Loan Brokers
– Car loan brokers in your area can review your situation and provide you with the best loan options available through the different lenders they work with. In addition, search for online car loan brokers as they may have national lending organizations on their panel of lenders to choose/compare from.
– While your bank might not provide low income car loans, there are many banks and credit unions that do.
A few phone calls can quickly identify and mainstream lenders in your location that provide affordable loans with great rates.
may be a good option if you have a willing family member or friend who has a strong financial position. This may not be the case for many and most don’t like to do business with people they are close to.
Last resort options
– Sometimes you have to just deal with the situation as it is at that moment, even if you have to spend more. If you have to have a specific car for work or for your family, these benefits may outweigh the costs.
What are some alternative low income car loan options?
See below for alternatives to help prevent you from buying a lemon or from a non-reputable dealer. Make sure you completely understand the terms, costs and interest rates of the deal.
Car Lot Financing
– Most towns and cities have car lots that advertise low doc, subprime, bad credit and low income financing. Some go as far as saying guaranteed financing. Car lot finance providers push the limit on the loans they provide and could be putting you in a loan you can’t afford. Car lot financing is generally more expensive than other lending options. Make sure you are fully aware of all costs and conditions prior.
Payday Type Car Loans
– Similar to the above, many payday type lenders are now expanding their business to include vehicle financing. As goes with the negative press around payday loans, be careful of these loan providers.
Salary Advance Loans
– Salary advance loans were created by credit unions.
They are typically for amounts between $50 – $500 with little to no fees and an interest rate generally around 18%.
Salary advance loans can be a great alternative to other high interest short-term loans.
The repayment period for these types of loans is around 30 days.
Stretch Pay Loans
– This is another product provided by Credit Unions.
Stretch Pay loans are small but, unlike Salary Advanced Loans, can go up to $1000 and have a repayment period which can be up to 12 months.
Checking/Saving Account Advance
– Similar to the payday loan concept, this service provided by many banks allows you access to a line of credit from upcoming deposits that are scheduled to go into your bank account. There is a cost attached to this service and is usually a percentage of the amount you advance.
This service is to help those with unexpected emergency expenses.
Social Lending / Peer to Peer Lending
– This isn’t your traditional form of lending but has becoming more popular as an alternative to banks and credit unions by many. Typically, this method tends to be easier and quicker to get. These come with a lower rate of interest and higher loan amount ($1000 – $10000).
– Borrowing against the equity in your home can have some great advantages. The interest rate is much lower and so are installments.
That said, you need to realize that you are putting your home at risk if you fail to pay.
A common mistake that many make is that they consolidate their debt and then only pay the minimum monthly installment. This leads to them paying a lot more interest over a longer term.
One method is to apply the installments that you were paying to your credit cards and to the home loan. That way you truly benefit from the low interest rate.
– A signature loan is a non-secure loan or personal loan. This is reserved for those with a good credit rating and solid proof of income.
All banks will provide this type of loan. The approval criteria attached to them are strict as it’s non-secure loan.
Conclusion: Are Low Income Car Loans For You?
Getting a low income car loan is not an easy task if you don’t do your research. There are lots of lending institutions out there, but not all of them are after your progress.
The best practice is to look up these lending institutions online. Compare at least three or more to know the one that suite your needs prior to applying.