How to Get a Car Loan with Low Income

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If you’re in need of a car loan but don’t earn a lot of money, don’t worry. There are options available to you. In fact, many lenders offer auto loans to low income car buyers. They may consider you for car financing, as long as you meet certain criteria. Here’s everything you need to know about how to get a car loan with low income.

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What is the minimum income required for an auto loan?

Income requirements for car loans vary by lender. However, most subprime lenders require that borrowers earn at least $1,500 per month. Keep in mind that the $1,500 is your gross monthly income, or the money you earn before taxes and other deductions are taken out. Your net income or your actual take home pay can be less than your pre tax monthly income.

While other lenders might approve you with a lower income, you’ll have to make up for it. For example, they may require that you have a high credit score or low debt-to-income ratio or DTI.

In addition, they’ll focus on the type of car you wish to buy to ensure it’s reliable and feasible for your budget. At the end of the day, lenders want to know that you’ll be able to repay the money you borrow.

How to Qualify for Low Income Car Loans

The reality is that getting approved for a low income auto loan is easier said than done. Fortunately, there are some strategies you can use to simplify the car buying process and increase your chances of success, including:

Understand Your Credit

Your credit score is a three digit figure that helps lenders assess your creditworthiness. A high credit score means that you’re responsible with debit while a low credit score positions you as a risky borrower who might not repay your car loan.

Visit AnnualCreditReport.com to pull copies of your credit reports from the three major credit bureaus, Equifax, Experian, and TransUnion. Be sure to review each report carefully and look for errors. If you find an inaccuracy, dispute it with the appropriate credit bureau as it may be bringing down your credit score.

Create a Budget

Before you shop for a vehicle and car loan from a bank or credit union, you need to figure out your budget. A budget will inform you of how much you can realistically spend on your car and still meet other monthly debt payments and monthly bills, like your mortgage, rent, student loans, personal loans, and credit cards.

To help you create a budget, find an auto loan monthly payment online. Then, plug in an estimated vehicle price, down payment amount, interest rate, and loan term.

Save for a Down Payment

A down payment is a percentage of your car’s purchase price. Most lenders prefer a down payment of anywhere from 10% to 20%. However, a large down payment can make it easier for you to get approved for a low income auto loan. This is because you won’t have to finance as much money.

If you’re buying a $25,000 car, for example, you should aim for a down payment between $2,500 to $5,000. Of course, putting down a larger down payment of even more than $5,000 is ideal.

Look for a Co-Borrower

If you’re struggling to lock in auto financing due to your income, you might want to add a co signer or co-borrower to your loan. A co-borrower can be a spouse, partner, or anyone else with income you can use to your advantage.

If you go the co-borrower route, both of your names will be listed on the title and you’ll both be responsible for making monthly car loan payments. Both of your credit scores will take a hit if you miss payments.

Choose the Right Car

While it may be tempting to shop for new cars with the latest and greatest features, doing so doesn’t make sense if you have a low income. Instead, browse the market for old cars or used cars as they are more affordable and come with lower auto insurance rates.

Before you move forward with a vehicle, check its history and read about its safety ratings or else you may end up with a lemon that leads to headaches down the road. Lenders will consider vehicle type when you apply for auto loan financing.

Gather Your Documents

You’ll need to submit certain documents when you apply for a car loan. In most cases, you’ll need a valid driver’s license, proof of car insurance, and additional documents if you’d like to trade in your current car.

You may also have to prove you have enough income through pay stubs and bank statements. Some lenders will even call your employer to confirm you have a job with a steady paycheck. Once you find a lender or car dealer with a low income car loan, ask them about their documentation requirements in advance.

Can I get a low income car loan with a good interest rate?

The interest rate you receive on an auto loan is important as it will determine your overall cost of borrowing. Believe it or not, you can land a low interest rate on a low income car loan. But your credit score will need to be in good shape.

A good credit score will fall in the 670 to 739 range. If you have a good credit score or an excellent credit score above 739, your chances of a great interest are high. Unfortunately, a low income and low credit score will likely disqualify you from a lower rate. In this case, you may need to settle for a higher interest rate that costs you hundreds or even thousands of extra dollars over the life of your loan.

Where to Get a Low Income Auto Loan

If you’re in the market for a car loan but have a low income, there are certain places you can turn to for auto financing and support with buying a car, such as:

1. Online Subprime Lenders

Online subprime lenders specialize in car loans for low income consumers and those who have had trouble getting approved for traditional auto financing. These lenders usually have quick, straightforward online applications but higher interest rates and longer terms.

Auto Credit Express

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  • Minimum credit score: 400
  • Loan term: Up to 72 months
  • Accepts applicants with bad or no credit and even past bankruptcy
  • A+ BBB rating

CarsDirect

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  • Minimum credit score: none
  • Loan term: Up to 72 months
  • Connects you with dealers within 24 hours.
  • A+ BBB rating

Carvana

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  • Minimum credit score: 450
  • Loan term: 12 to 72 months
  • Quick application

car.Loan

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  • Minimum credit score: none
  • Loan term: Up to 72 months
  • All credit accepted. Lease, buy, or rent.
  • Same-day approval

myAutoLoan

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  • Minimum credit score: 575
  • Loan term: 24 to 84 months
  • A+ BBB rating

2. Subprime Bank Loans

You may be surprised to learn that some large banks and some credit unions lend to subprime borrowers, including low income earners. However, their requirements are typically stricter than those of online subprime lenders. Even though they may look for a higher income and credit score, you might be able to land lower rates and more favorable loan terms.

3. Buy Here, Pay Here Loans

Buy here, pay here loans from car dealerships and other auto lenders are widely advertised to borrowers with low income or bad credit. With this type of loan, you’ll have to come up with a down payment and make weekly or biweekly payments.

As long as you can afford the down payment and more frequent payments, buy here, pay here loans may make sense. This is particularly true if you get one from a reputable lender who will report your on-time payments to the credit bureaus. Remember that even one late or missed car payment can hurt your credit.

4. Nonprofit Organizations

Some nonprofit organizations help families who can’t afford car loans or repairs on their vehicles. One example is Ways to Work. Ways to Work offers low dollar, short term car loans with fairly low interest rates.

It’s well worth your time to check their website to determine whether you meet the criteria to apply. Other charitable organizations provide donated cars to those who earn a low income, are unemployed, or are living with a disability.

5. Grants

There are a few states and counties that offer grants that are designed to help low income families buy a car. Unlike loans, grants do not need to be paid back. However, the issue with grants is that there are limited options and they are usually difficult to get. A few examples of grants you might want to explore include Working Cars for Working People and Opportunity Cars.

Bottom Line

You don’t need to earn a lot of money to secure auto financing from a bank, credit union, dealer, or online lender. Even if you have a low income or poor credit, you may qualify for a car loan and turn your dream of car ownership into a reality. All it takes is some research, planning, and patience to find the best rate and deal. Good luck with your search for low income auto financing.

Anna Baluch
Meet the author

Anna Baluch is a freelance personal finance writer from Cleveland, OH. She enjoys helping people make smart financial decisions.