Lending criteria have changed during the past two years making it a bit tougher for customers to obtain financing for homes or vehicles.  If you have bad credit and you are looking to get financed for the purchase of a new or used vehicle you should take a minute to review what lenders currently look for in an applicant.

Below are minimum requirements for a bad credit car loan approval in today’s market:

• Minimum Income: Minimum of $1,900-$2,000  (Buy Here Pay Here lots and Rent to Own car dealers will typically have lower income requirements)
• Bankruptcy: The 341 meeting of creditors must be completed before you can be approved following Chapter 7 Bankruptcy.  For Chapter 13, an Authorization to Incur Debt is required from the trustee before approval can be completed
• Repossession: No repo’s within the last year unless it was included as part of a bankruptcy filing.
• Credit Scores: Most mainstream lenders and dealers will work with credit scores above 600, though many Buy Here Pay Here Dealers and Rent to Own dealers may not run a credit check.

Yes, it is a bit tougher to get approved for car loans in our new economy, but it is not impossible. Don’t let tougher credit guidelines scare you away.

Because of the credit crunch and financial situation in the US, the lending guidelines have changed for most car dealers. Before, people with an income of $1,500 a month or more could get approved for a car loan.  The situation has since changed.

These days, car dealers will typically consider potential buyers who make at least $2,000 a month. If you are thinking about purchasing a car with auto financing and you make less than this amount, get a part time job, or wait until you get another raise before you apply. Applying prematurely and getting denied will only add a credit inquiry to your credit file, lowering your overall credit score (which would make it harder for you to qualify in the future).

If you are self-employed, be sure to file tax returns annually showing as much income as possible.  Some self-employed people will do whatever they can to hide income, especially cash payments such as tips, from the IRS.  When time comes for them to apply for a car loan, they soon realize what a grave mistake they made since tax returns effectively serve as your proof of income when you are self-employed and cannot provide pay stubs to a car dealer. (not to mention that hiding money from IRS is illegal)

A couple of years ago I walked into a car dealership feeling confident I was about to walk away with a brand new car.  Reality check. I was turned down and fast. The finance manager took one look at my credit and almost laughed out loud. How humiliating. Then they invited me to look into their second chance program. That involved waiting in the nasty waiting room at the dealership until the special financing manager was available to see me. I’ve heard they do this kind of stuff on purpose to get break people before they hit them over the head with huge interest fees.

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