Auto finance companies evaluate loan applications based on three primary factors: credit score, down payment, and debt-to-income ratio (DTI).
Negative marks stay on your credit report for seven years, so you cannot raise your score quickly. It takes time to save enough money for a down payment.
If you need a car now but have bad credit and no down payment, lowering your DTI can help you get approved without a co-signer or an older vehicle to trade in.
Demonstrate that you can repay the loan by cutting your monthly debt or showing more income.
Lower Debt Payments To Finance A Car
It is tough to finance a car with low credit scores, no money down, and no trade-in. Cut your monthly debt payments to lower your DTI to prove you can afford a new car.
Existing Debts
Cut your existing debt payments before visiting the car dealer. Reduce your DTI to 20% or lower to improve your chances. Lenders often approve loans with a 35% total DTI, allowing 15% for car payments.
Lenders will consider these fixed expenses:
- Housing costs (rent or mortgage)
- Long-term installment obligations
- Minimum payment on revolving accounts
- Alimony and child support payments
Housing Costs
Housing costs are often the biggest expense and easiest to cut. You can move to a cheaper apartment, live with your parents, get a roommate, or use Section 8 vouchers.
Installment Loans
The best way to lower monthly payments on installment loans is to pay them off. But where do you get the money?
Government benefits for personal expenses such as groceries, energy, water, internet, and medical services can help you save and pay off your installment loans.
Credit Cards
Lowering the minimum payment on credit cards has little impact on DTI because the amounts are small. Plus, the primary options have drawbacks.
- Debt relief programs for credit cards often take too long. You must save money in an escrow account to make a settlement offer.
- Credit card consolidation loans often raise monthly payments by setting a fixed term. Approvals are also hard to get if you have poor credit and no savings.
Future Debts
You can finance a car if you can afford extra debt. Dealers, buyers, and lenders control the monthly payments determining DTI.
- Dealers decide the price they want to charge for each vehicle.
- Lenders determine the interest rate and repayment terms.
- Buyers choose the car they want to purchase.
Pick an affordable, budget-friendly vehicle. This decision is the only element you control to keep monthly payments below the lender’s threshold.
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Increase Income To Finance A Car
Getting a car loan with bad credit scores, zero down payment, and no trade-in vehicle requires extra effort. Another way to show you can afford a new car and keep a low DTI is to increase your monthly income from all sources.
New Job
You may be able to finance a car by getting a new, higher-paying job. Increasing income through employment is a sound way to lower DTI and show you can afford the projected payments.
Length of employment affects auto loan eligibility, so be careful when you have marginal credentials. Wait until you have at least three months of paystubs to present to the lender.
Extra Job
Getting a second job is a great way to boost car loan approval. The additional income lowers your projected DTI, showing you can afford the monthly payments.
The gig economy makes it easy to boost earnings quickly with side work. Ride-share programs, online freelance opportunities, and short-term property rentals can create a record of regular bank deposits.
Uber car rentals allow you to earn extra money if you do not have a reliable vehicle. All options come with insurance, unlimited mileage, and essential maintenance.
Extra Income
Single mothers can often boost their car loan approval odds with diverse income sources. Multiple income streams are more reliable, giving lenders confidence that payments will be on time.
Single mothers can supplement their earnings and reliably lower their DTI in several ways.
- TANF offers money for work-related transportation expenses.
- Alimony from ex-husbands increases purchasing power.
- Child support from fathers stretches budgets further.
