Gross income (pre-tax) is the figure that lenders will use when determining your ability to repay an auto loan. Lenders will want to see a recent pay stub to verify your gross income as well as how much you are paying for taxes, medical/dental/vision, 401k, and any other deductions like child support or collection actions. They will also be looking at your year-to-date income. This helps them determine if your current pay stub is unusually large, or your average income. Those who are self-employed will be required to show tax returns for at least three years.
Most lenders require a regular gross monthly income of $1500, at minimum. However, other lenders – including many banks – may have minimum income requirements of $1800 or even $2000 per month before taxes. Fortunately, most of the lenders and dealers in our network only require $375 a week in income for approval. Have sufficient income? Apply for financing today.
Not Just Income – Debt to Income
After verifying your gross, a lender is going to want to know what your monthly payments are for other loans, rent, etc. This is to establish your debt to income ratio. This ratio is all powerful in determining your ability to repay a loan. If your ratio is in excess of 35-50 percent, you will mostly likely be denied the loan. The reason is simple: the loan payment will put too much of a strain on your monthly budget, thereby increasing the risk of default and repossession. Remember, lenders are in the business of minimizing risk. After all, they cannot make money without borrowers paying them interest.
To decrease this ratio, you might want to prepare for your auto loan a few months before you apply. Try paying off any small balances you have. Credit cards are usually an easy target to pay off. If you have active collections, you may want to concentrate on paying them off before taking on a loan. Go here to learn more about what lenders look for, and how to maximize your chances of approval.