Understanding Debt to Income and Payment to Income When Applying For Auto Loans With Bad Credit
When applying for auto loans in the sub prime arena debt to income and payment to income ratios are two guidelines that lenders pay very close attention to when considering approving a loan. Each lender has their own percentages that they follow in both of these categories. Understanding these terms will help you to know what payment range you should be looking in when considering a new vehicle. If you keep your monthly payments within the lenders debt to income and payment to income guidelines it will greatly increase your chances for approval.
Debt to income – This is calculated by taking the total of all your outgoing monthly payments as they show on your credit report and dividing it by your total gross monthly income. The percentage that you get is called your debt to income ratio. In other words if your monthly outgoing bills total $2500.00 and your gross monthly income is $5000.00 then your debt to income ratio would be 50 percent. This ratio tells the lender how much of your monthly income as a percentage is already being used to pay your monthly bills. The ratio that lenders will usually accept can range from 25 to 40 percent depending on the lender. If your ratio is higher than the guidelines set forth by the lender you will not be approved.
Payment to income – Some sub prime lenders have payment to income guidelines that they will follow when considering approving a loan. This is calculated by taking your gross monthly income and multiplying it by the percentage that the lender will allow. In other words if your gross monthly income is $4000.00 and the lenders payment to income percentage allowed is 20 percent then the maximum monthly payment they will approve you for would be $800.00. If the vehicle you want puts your payment higher than the ratio the lender allows you will not be approved.
If you know you have bad credit or no credit and want to get approved for an auto loan ask the dealer or lender you are dealing with what there debt to income and payment to income guidelines are ahead of time. By doing this you can strategically place yourself within those guidelines and greatly increase your chances for approval when applying for auto loans with bad credit.
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This author has over 20 years of automotive finance experience, specializing in auto loans with bad credit. You can visit http://www.autoloanswithbadcreditnow.com/ Our lending partners have a 99% acceptance rate, simply click one of our banners to get approved now.
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