In this day and age owning a car is a necessity. A car is no longer a luxury but an essential investment for an easy life. You may require a car for college or work especially when you need to commute long distances. An important aspect of getting a car loan is your monthly income. If you are a first-time car buyer or if your monthly income is low, you can still avail an auto loan. Understand all about how to avail an auto loan while you suffer from limited income.
Low Income Auto Loans: Pointers to Keep in Mind
The following factors will help you to understand how you can obtain an auto loan if you have a low income.
1. Buy a Car That Fits Your Budget
When you have a low income, look for a car that is within your budget. Exceeding your budget because you are tempted to buy a new car will not get you a good deal. Buy pre-owned vehicles that are cheaper than new cars. You can also look at older car models that are no longer up for sale or demo cars at the dealership lot. Also, make sure that you are able to make a down payment of at least 20% of the total cost of the car. Do not exceed the loan term by more than 60 months. Once you take your budget into consideration, you can avail an auto loan, even with a low income.
2. The Debt to Income Ratio
A debt to income ratio calculates the total debt that you owe against your current income. You may receive faster approvals on your car financing if your debt to income ratio does not exceed 40%. Additionally, get rid of your previous loans or debt because when a lender calculates your debt to income ratio, they may include the amount of the current auto loan along with the car insurance. Therefore, aim at maintaining a lower debt to income ratio especially when you want to get low income auto loans.
3. Income vs. Expenditure
Usually, a lender requires $1500 as the minimum gross monthly income to approve an auto loan. However, if your income is lower than $1500, there may still be a chance you can avail the auto loan. Lenders make use of the payment to income ratio, i.e., your monthly car payments divided by your pre-tax income. A payment to income ratio of 15% will get you through auto loan approval. However, in order to increase the chances of your approval, try to reduce your monthly expenditures in a way that you can display more savings per month.
Stay Away from Factors that sabotage your Chances
Since income is an essential element for getting auto loan approval, make sure you take care of certain factors that could sabotage your deal. For instance, do not overlook the cost of title fees, registration, insurance, etc. The total cost of car ownership is an important element especially when you have a low income. Additionally, employment is an important aspect and lenders usually prefer people who have been employed at the same place for at least one year. Therefore, if you are thinking of switching jobs, wait until you get your auto loan. So, make sure you manifest the image of a credible borrower to get the most out of a low income auto loan.
Got low income? You can still buy a car. Apply for low income auto loans online. Choosing a reliable bad credit auto financing company will help you make a car purchase at affordable interest rates. Get in touch today.